Scientific Games’ lotteries arm receives varying valuations from investors

by Noah Taylor Last Updated
Scientific Games’ lotteries arm receives varying valuations from investors

The listing of Scientific Games via an initial public offering could be the biggest since Medibank Private in 2014 as talks continue with a range of investors from Australia and offshore about what the firm’s next move should be.

The Australian Financial Review reports that the global lottery products and services delivered by SG Lottery should be worth $11.1 billion to $15.2 billion on an enterprise value basis, according to analysts from Morgan Stanley.

Morgan Stanley analysts said the lottery was a long-running business with an experienced management team and was the dominant player in its core scratch-to-win market, both globally and in the United States.

The analysts said SG Lottery’s growth would accelerate in 2022 due to market share gains, new revenues and a better use of capital.

The analysts valued it at 18.2 to 25.1-times 2022 forecast earnings before interest, tax, depreciation and amortisation of US$443 million, or 16.1 to 22.2 times adjusted EBITDA.

Their valuation also implied 6.8 to 9.4 times sales, a 27 to 39 times price to earnings ratio and 2.6 per cent to 3.6 per cent yield.

Morgan Stanley’s research was just one of five pre-deal reports due to hit fund managers’ desks.

Morgan Stanley is a joint lead manager to SG Lottery’s potential initial public offering, alongside Jarden, Macquarie Capital, Goldman Sachs and UBS.

Goldman Sachs has a different valuation for SG Lottery

Goldman Sachs’ analysts went lower than their counterparts at Morgan Stanley.

Their analysts, headed by Desmond Tsao, said SG Lottery was worth $9.28 billion to $12.92 billion on an enterprise value basis or 14 to 19.5 times adjusted EBITDA.

Goldman Sachs said SG Lottery had a strong growth outlook and operated in a market that had “demonstrated resilience through times of economic softness”.

“The industry also exhibits infrastructure-like and defensive characteristics, as evident by SG Lottery’s scale as a dominant number one global leader in instant products, as well as long-standing customer relationships and long duration contracts,” Goldman Sachs said.

Goldman Sachs said its valuation was consistent with global gaming and domestic infrastructure stocks that traded at close to 20 times EBITDA, while domestic gaming stocks, excluding Crown Resorts, were at 14 times.

The numbers out of the three other sponsor brokers – Jarden, Macquarie Capital and UBS were a bit lower.

Macquarie, Jarden and UBS weigh in

Macquarie Capital’s team valued SG Lottery at $9 billion to $10.9 billion,o n a sum of the parts basis, which implied to 17.6 times 2022 forecast EBITDA.

UBS’ analysts set their market at $8.9 billion to $12 billion, while Jarden came in at $9.4 billion to $10.6 billion.

The valuations are likely to set the tone for SG Lottery and its bankers’ meetings with investors in coming weeks.

Fund managers normally expect IPOs to be priced towards the bottom end of broker valuations which, in this case, would suggest towards 15-times EBITDA.

Scientific Games parts way with Don Best

In early July, Scientific Games said it was parting ways with its lottery unit and its Don Best wagering arm.

Scientific Games President and chief executive officer Barry Cottle said that the decision to divest “reflects key steps to optimise our portfolio and strengthen our balance sheet by significantly de-levering while also targeting investments in our largest growth opportunities. These steps will accelerate our path to become a content-led growth company focused on leading in both land-based and digital markets.

The Nasdaq-listed Scientific Games had engaged Sydney-based Jarden Australia to run the numbers on a potential ASX-listing and feed their input into a broader strategic review that’s mulling options to fix up the company’s debt-heavy corporate structure.

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