The stock prices of Scientific Games and Everi have been hitting all-time highs recently, and both companies are taking actions that promise to further reward investors.
First off, kudos to SG Chairman Jamie Odell and CEO Barry Cottle for a strategic review that proved to be just that.
Often, the term strategic review is a euphemism for “let’s just sell the company.” In this case, the Sci Games strategic review is resulting in a strategic restructuring of the company. And in a sense, the proposed changes are just a dramatic way of achieving an end that the gaming industry is heading towards being omnichannel providers of gambling entertainment.
Sci Games intends to slash the onerous debt built up financing a series of mergers by selling off the lottery business and non-core sports betting business. It will focus on the core business of supplying slots, table games and casino management systems, plus fast-growing online gaming and social gaming.
Stifel analyst Jeffrey Stantial estimates that the sales could fetch $5.5 billion and allow Sci Games to cut its debt-to-EBITDA ratio to around three times. It was nearly 11 times to start the year, though that was inflated by Covid impacts on business.
Lower debt will permit Sci Games to invest in the fast-growing businesses that it’s retaining.
The company is considering different routes to divest from IPOs to SPACs to sales. And though it didn’t indicate as such in its announcement, Sci Games could keep a portion of the businesses, as when it IPO’d social gamer SciPlay.
Whatever path it choses, the reorganization will simplify the corporate structure and help unify company culture, which had been challenged by the several mergers that created today’s Sci Games.
There’s some irony that Scientific Games, principally a lottery company, bought game companies during the merger binge and now will be a pure games company, sans lottery. In retrospect, that became likely with former Aristocrat CEO Jamie Odell coming on as executive chairman and bringing on so many former Aristocrat executives.
Meanwhile, being an omnichannel supplier simply means that a game can be played in a slot machine, online or as a non-gambling social game. It’s the way the gaming industry is headed. A couple of years ago, some people asked where growth would come from in what was seen as a maturing industry. The answer is omnichannel.
Kudos to Everi, Too
Everi CEO Mike Rumbolz and CFO Randy Taylor have their reasons to crow, too.
A week earlier, Everi announced a comprehensive restructuring of its debt that, to use the popular term of the day, checked off all the boxes.
Everi had already given investors reasons to be bullish. The recovery in casino revenues from Covid impacts directly benefits Everi’s FinTech business. The expected rush by casinos to implement cashless gaming will benefit another FinTech product. And Everi has now developed a full line of slot products and the games are performing well.
The refinancing will cut debt from $1.145 billion to $1 billion, which B Riley analyst Dave Bain estimates will reduce debt-to-EBITDA to just 2.2 times by next year. That certainly will give Everi flexibility to invest in growth.
The first evidence of the success of this process was the announcement that Everi will sell $400 million in unsecured notes at 5 percent interest to redeem 7.5 percent debt.
It doesn’t hurt that Everi also announced that it will report record financial results in coming weeks.
Bain, the biggest bull on the stock, has raised his target price to $38, a nice gain yet to be made for shares selling just short of $26.
