Published: August 5, 2021

‘Robust’ SG Lottery in maiden pitch for $5b IPO

If there are two things that fund managers know, it is that Americans can sell and bankers know how to present IPO candidates.

So we shouldn’t be surprised to hear $5 billion IPO contender SG Lottery was dressed up and ready to go for its maiden pitch to Australian fundies on Thursday.

SG Lottery has 150 customers spanning more than 60 countries. 

Fundies said the presentation was typically slick and light on crucial details (IPO price and forecasts) like all non-deal roadshows, but it did offer up plenty of information about the business and how it had performed over the past five years.

SG Lottery boss Patrick McHugh pitched his business as the “leading, diversified global lottery partner with deep customer relationships and robust cash flows”, according to the presentation given to potential investors.

He said SG Lottery had 150 customers spanning more than 60 countries, had been looking after its top 10 customers for an average 35 years each, won renewals on 95 per cent of its contracts and 78 per cent of its revenue was “sustainable, contracted” in 2020.

He said the unit recorded $US954 million revenue and $US430 million adjusted EBITDA, operated at a 45 per cent AEBITDA margin (which is more than twice Tabcorp’s Tatts Lotteries) and 89 per cent free cash flow conversion.

The charts showed revenue, adjusted EBITDA and free cash flow all trending up – as you would suspect from an IPO contender, and particularly one with big ambitions and a five bank syndicate helping with its pitch. Revenue was up 5.1 per cent a year over the past five years, on a compound annual growth rate basis, while adjusted EBITDA was up 5.2 per cent a year and free cash flow 5 per cent, the slides said.

Fundies would say that’s low growth, albeit steady, consistent and defensive, which would likely ensure a decent earnings multiple. SG Lottery and its bankers framed it as “infrastructure-like”, and said those “strong infrastructure-like characteristics leading to highly sustainable revenues”.

Instant games – scratchies – represented 69 per cent of SG Lottery’s $US918 million revenue in 2020, the pitch said, while point of sales systems and retail solutions made up 34 per cent and iLottery accounted for the remaining 13 per cent.

About three-quarters of its sales were recorded in North America, with a global headquarters and primary manufacturing facility in Alpharetta, Georgia.

In a nutshell, fundies said it was a good maiden pitch. Domestic institutions didn’t know a lot about SG Lottery, although had studied it as part of their research on Tabcorp’s lotteries and keno division, which is also due to be listed on the ASX in the coming year or so.

As always, though, whether SciGames and its brokers can get SG Lottery to the ASX boards will depend on price. And fundies reckon it was clear from the pitch they’re thinking high-teens type AEBITDA multiples.

© Public Gaming Research Institute. All rights reserved.