IGT Update
In February I wrote about International Game Technology (IGT) and the myriad of moving pieces and uncertainties that were creating a depressed valuation for the stock. For the full back story and a refresher on the history of the company please refer to the previous write-up. In recent months the stock has been priced as a low-quality, dying business when in fact a (soon to be) pure-play lottery provider is a high-quality, predictable, entrenched and cash generative business model.
This week the most significant piece of uncertainty was removed as the company announced they secured the Italian lottery contract for the next nine years. This was a major re-risking event for the company and virtually assured continued steady earnings power for the foreseeable future. However, the company paid quite a bit more for the contract than I (or anyone else) anticipated.
Due to the elevated price of the contract the stock dropped a bit over the ensuing few days, creating a very interesting setup for long-term investors. Despite an elevated purchase price for the Italian contract, forward returns are strong and, more importantly, significantly more certain compared to a few months ago. This is particularly true given the major delevering event that is still squarely on track to close in the third quarter.
Here I’ll take a quick look at the economics of the Italian lotto contract and the company’s updated long-term earnings power along with forward return scenarios for shareholders.
Do you have a “stranded” 401k from a past job that is neglected and unmanaged? These accounts are often an excellent fit for Eagle Point Capital’s long-term investment approach. Eagle Point manages separately manage accounts for retail investors. If you would like to invest with Eagle Point Capital or connect with us, please email info@eaglepointcap.com.