|Shares Out. (in M):||94||P/E||0||0|
|Market Cap (in $M):||6,025||P/FCF||12.6||10|
|Net Debt (in $M):||2,597||EBIT||0||0|
|TEV (in $M):||7,624||TEV/EBIT||0||0|
Sign up for free guest access to view investment idea with a 45 days delay.
Light & Wonder LNW
We believe Light & Wonder (LNW) formerly Scientific Games is a high-quality business operating in a global oligopoly with significant barriers to entry and high switching costs trading at 10x times 2024 cash flow. Today’s price implies little to no value being ascribed to LNW’s two digital assets which we view as free call options that are highly synergistic to the base business while also underestimating LNW’s core business which is poised for several years of accelerated growth and market share gains.
LNW, formerly Scientific Games (SGMS), presents a unique opportunity in public markets. With the business and cap table undergoing a period of substantial change in the last 18 months, investing in LNW today is equivalent to investing in a newly public company which has bypassed the IPO process.
Following a full refresh of LNW’s BoD and C-suite, LNW is in the early days of transitioning itself from a diversified, poorly integrated, and highly levered holding company (peak leverage of 10.5x in Q1/21) while also repurchasing 5% of the company YTD in 2022. We believe additional buybacks will accelerate if the share price falls. Today LNW into an omnichannel gaming company with 75% recurring revenue, a captive install base and cross-channel synergies.
LNW’s primary Gaming business designs, develops, manufactures, markets and distributes a portfolio of gaming content, products and services for physical, land-based casinos. Casino capex budgets are only now returning to 2019 spending conditions and poised for a growth cycle following 2 years of negligible spending while we believe LNW is set to take additional share at the high end of the market.
LNW’s two other businesses are focused on digital casino games (iGaming) and mobile/social gaming (SciPlay). We feel that iGaming is highly synergistic with LNW’s land-based casino business and competitively positioned to win substantial market share. We believe the TAM for iGaming will prove to be much larger than land-based casinos as US states begin to legalize digital casinos, following a similar path as sports betting which is now legal in ~80% of the US.
No longer capital constrained, with a new BoD and c-suite poached from the #1 player in the industry, we believe LNW has assembled an all-star team. Today we are paying 10x 2023 FCF for a business poised to take market share within a global oligopoly, with a customer base that is emerging from trough spending levels, this is highly attractive in our view. Additionally, we are getting two businesses with macro-growth tailwinds, large TAMs, high contribution margins and FCF conversion for free. We see LNW as a highly asymmetrical investment with modest downside from current levels and model a 30% 5yr IRR or 3.7x MOIC on our investment.