Digital Lottery Outsourcing And Industry Consolidation Will Drive Long-Term Upside

Catalysts

About Intralot Intergrated Lottery Systems and Services

Intralot Integrated Lottery Systems and Services operates technology, systems and managed services for lottery and gaming operators worldwide, with a growing mix of B2B, B2G and interactive solutions.

What are the underlying business or industry changes driving this perspective?

• Scale benefits from the recent combination with Bally's International Interactive, including EUR 25 million of incremental synergies by 2027, position the group to absorb tax and FX shocks better than smaller peers. This supports sustained high EBITDA margins and free cash flow.
• Structural consolidation in regulated online gaming, driven by higher U.K. remote gaming duty and upcoming sports betting tax increases, is likely to force subscale operators out and shift wallet share to high margin platforms like Intralot and Bally's. This underpins long term revenue growth and operating leverage.
• Growing demand from state and provincial lotteries for outsourced and turnkey digital lottery solutions, including upcoming tenders in Ontario, Maryland, Minnesota, Texas and additional Latin American opportunities, should expand the B2B and B2G contract base and increase recurring revenue visibility.
• Ongoing digital adoption and the rollout of the Vitruvian platform and new iLottery projects, such as British Columbia and Croatia, are expected to raise per player spend and mix revenue toward higher margin interactive offerings, improving overall EBITDA and cash conversion.
• Disciplined capital allocation, with leverage trending down from 2.3x and a stated intent for both share buybacks and a 35 percent dividend payout from 2026 earnings, indicates confidence that cash generation will comfortably fund elevated 2026 to 2027 CapEx while still growing earnings per share.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Intralot Intergrated Lottery Systems and Services's revenue will grow by 51.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.3% today to 14.3% in 3 years time.
• Analysts expect earnings to reach €183.5 million (and earnings per share of €0.1) by about December 2028, up from €-4.7 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 6.5x on those 2028 earnings, up from -412.2x today. This future PE is lower than the current PE for the GB Hospitality industry at 21.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.67%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Further tax and regulatory tightening in key markets such as the U.K. and potentially other European jurisdictions could go beyond current expectations, pushing more play to offshore or unregulated operators and compressing long term revenue growth and EBITDA margins instead of driving the benign consolidation assumed by management. This would ultimately weigh on earnings.
• The strategy to offset higher gaming taxes through generosity cuts, marketing reductions and product mix changes may prove less elastic than anticipated. This could lead to weaker customer acquisition and lower per player spend in a structurally higher tax environment, which would pressure top line growth and limit improvement in net margins and earnings.
• FX volatility and macroeconomic weakness in important markets such as the United States, Turkey and Argentina already caused a 2.9 percent revenue decline year to date and an 11.8 percent drop in the third quarter. A continuation or worsening of these trends could structurally erode reported revenue and EBITDA, undermining free cash flow and net income despite stable performance in constant currency terms.
• Execution risk around the heavy CapEx cycle in 2026 and 2027, including potential delays, lower than expected returns or lost or renegotiated lottery contracts in markets like Ontario, Maryland, Minnesota, Texas and Australia, could result in an unfavorable balance between upfront investment and realized cash flows. This may depress free cash flow generation and limit deleveraging and earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €1.35 for Intralot Intergrated Lottery Systems and Services based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €1.3 billion, earnings will come to €183.5 million, and it would be trading on a PE ratio of 6.5x, assuming you use a discount rate of 13.7%.
  
• Given the current share price of €1.04, the analyst price target of €1.35 is 22.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.