OREANDA-NEWS. Fitch Ratings has published its "U.S. Gaming Supplier Dashboard". The Dashboard discusses the supplier industry and offers key statistics and analysis.

In the report, Fitch estimates that the continued weakness in the slots segment and lottery concession renewals, will keep leverage elevated closer to 5x for IGT and 7x for Scientific Games (SGMS) in the near term. Fitch believes these pressures will offset much of the merger synergy benefits.

IGT has the cash flow to reduce leverage closer to its 4x target within the medium term while SGMS' leverage hovers well above its own target of 5x for the foreseeable future, given its tighter cash flows.

2015 was an especially tough year for slot suppliers with a lull in new openings relative to 2014. Despite the lack of new openings, merger integration costs, and as yet unrealized synergies, IGT's free cash flow (FCF) is solid while SGMS's FCF is closer to break-even. Fitch estimates that both IGT's (excluding lotto concession fees) and SGMS's discretionary FCF will exceed $600 million and $150 million, respectively, after 2016 when most of the synergies will be incorporated.

The impressive lineups demonstrated by IGT and SGMS at 2015 Global Gaming Expo (G2E) should help stem participation market share loss to Aristocrat Leisure. However, Fitch believes downside risk remains for IGT's and SMGS's participation business given the overall shrinking participation footprints and that the slots sector remains highly competitive.

Fitch does not foresee any game-changing slot innovations that will motivate wholesale slot floor replacements in the style of ticket-in ticket-out (TITO) and low volatility video slots. Instead, Fitch sees mobile gaming technology (e.g. social gaming, bring-your-own-device gaming) becoming more prominent, which may reduce demand for traditional cabinets. Positively, the larger suppliers have good exposure to mobile gaming.
IGT's and SGMS's exposure to lottery is a positive because the lottery has better secular prospects relative to slots. However, lottery is cash flow intensive, competitive, and is subject to concession renewals. The agency views SGMS's lottery business more favorably, given its lower concentration and heavier skew toward instant tickets.

Fitch will regularly update supplier industry key statistics and analysis in its "U.S. Gaming Supplier Dashboard" available at www.fitchratings.com or by clicking on the link below. Fitch also published recently a more detailed report on the gaming suppliers, "An Arduous Path to Deleveraging for Gaming Suppliers", also available on www.fitchratings.com.