Earlier this week, MGM Resorts International (NYSE: MGM) announced that its LeoVegas division is acquiring the US iGaming and sportsbook operations of Tipico Group for an undisclosed amount — a transaction that's already receiving acclaim from several analysts.
The Tipico acquisition focuses more on enhancing technological capabilities than on increasing market share; however, Gimme Credit analyst Kim Noland referred to the agreement as “a key component” of MGM’s digital strategy, noting that the operator's initiatives in this area are beginning to yield incremental benefits.
"MGM’s sports betting and digital offerings are beginning to provide a profitable addition to its luxury international casino resorts presence and could be a growth tailwind going forward,” wrote the analyst in new report to clients.
Tipico is set to stop its US operations, and certain US-based managers, technology, and trading personnel will transition to LeoVegas once the deal is completed in the third quarter.
When MGM purchased LeoVegas in 2022 for over $600 million, it unmistakably indicated that the gaming firm aimed to expand its digital reach outside the U.S. The upcoming acquisition of Tipico technology could enhance that effort.
MGM's global strategy for its digital gaming sector is relevant to investors since the operator is not restricted by its partnership with Entain beyond the U.S. Here, BetMGM operates as a 50/50 joint venture shared by MGM and Entain, but associated competitive limitations do not apply to MGM outside the United States.
“The Tipico technology will help to scale MGM/LeoVegas across multiple jurisdictions and can be deployed internationally where the BetMGM joint venture doesn’t have exclusivity,” added Noland. “In addition, MGM recently joined a partnership with Playtech to offer live casino content, streamed directly from the gaming floors of Bellagio and MGM Grand in Las Vegas, to international regulated markets, with an option for entrance into U.S. markets in the future.”
The analyst noted that the Playtech live gaming project might face regulatory challenges, yet in general, MGM’s iGaming division is expanding.
MGM's shares surged almost 15% this month; however, the stock offers no significant dividend, suggesting that income investors may wish to consider the company’s bonds maturing in 2027. Noland gives that issue an "outperform" rating and mentions it has a yield-to-worst of approximately 6%.
She noted that the gaming company's free cash flow production and other solid fundamentals bolster the optimistic outlook for the bonds.
“Our free cash flow estimate (adjusted EBITDAR less cash rent, interest, taxes and capex) is based on management’s guidance of $850 million capex and totals near $1.5 billion. In addition, MGM’s stock repurchases are significant ($511 million in the first quarter) and its remaining authorization is a hefty $1.7 billion,” concluded the analyst.
