Is IGT the Best Undervalued UK Stock? Here's the Case for Buying Now

International Game Technology PLC (IGT) has emerged as a compelling investment opportunity in the UK market, blending undervalued multiples, a strategic pivot to high-margin lottery operations, and a dividend yield of nearly 5%. But is this a buy for investors seeking growth and income? Let’s break down the data.

Valuation: A Bargain at Current Levels?

IGT’s valuation metrics signal a potential bargain. With a trailing P/E of 8.66 and EV/EBITDA of 8.72, the stock trades below many peers in the gaming and lottery sector. Analysts have a consensus "Strong Buy" rating, with a price target of £26.25—implying a 60% upside from its recent price of £16.43.

The stock’s 52-week range of £16.43–£28.95 highlights its volatility, but the 4.89% dividend yield offers downside protection. Meanwhile, its price-to-book ratio of 1.99 reflects the value of its proprietary technology and patents, including a £612M portfolio and 387 active patents.

Financial Health: Debt Reduction Is Key

IGT’s balance sheet has been its Achilles’ heel, with £5.5 billion in debt as of late 2024. However, the announced sale of its gaming and digital divisions for £4 billion (closing by early 2025) will slash net debt to £2.4 billion, reducing leverage to 2.4x EBITDA—a historic low. This move also eliminates bankruptcy risks flagged by an Altman Z-Score of 0.93 (below 1.8 indicates distress) pre-sale.

With £1.9 billion in liquidity (cash plus undrawn credit facilities), IGT now has the flexibility to focus on its core lottery business, which generates 80% of its free cash flow (FCF). The lottery division’s 47% EBITDA margin and £276M in annual R&D spending for innovations like its iLottery platform position IGT to capitalize on growth in regulated markets.

Growth Prospects: Betting on Lotteries

IGT’s strategic shift to its lottery business is paying off. The division operates in 100+ jurisdictions, including the UK, and has secured contracts worth £7.4 billion by 2026. Its iLottery platform—active in 11 markets—targets digital-first consumers, while its instant ticket and draw games grew by 4% in Q4 2024.

The company also plans to invest £40 million in cost savings via its OPtiMa 3.0 initiative by 2026, further boosting margins. With £954 million in LTM FCF, IGT has the financial muscle to fund expansion while maintaining its dividend.

Risks to Consider

• Regulatory Headwinds: Compliance costs in U.S. states (up to £500 million) and evolving European online gaming rules could pressure margins.
• Execution Risk: The success of its lottery expansion hinges on winning bids like Italy’s Lotto contract. A misstep here could delay growth targets.
• Market Volatility: The stock’s beta of 1.66 means it’s sensitive to macroeconomic swings, as seen in its 20% decline over the past year.

UK Market Outlook

While IGT’s UK-specific performance isn’t detailed, its global footprint includes strong ties to regulated markets like the UK’s National Lottery. With £287 million in annual R&D focused on digital and sports betting—sectors growing in the UK—the company is well-positioned to capitalize on trends.

Conclusion: A High-Reward, High-Risk Opportunity

IGT presents a compelling case as an undervalued UK stock, backed by strong FCF, a dividend yield of 4.89%, and a strategic pivot to its profitable lottery business. The debt reduction post-sale removes a critical risk, while analyst targets suggest significant upside. However, investors must weigh the risks: execution on growth plans, regulatory hurdles, and market volatility.

For those willing to take on these risks, IGT’s valuation multiples—particularly its EV/EBITDA of 8.72 versus peers averaging 12–15x—make it a high-conviction buy. The August 2025 earnings report will be a key test, as results must align with the £55 million net income forecast to sustain optimism.

In short, IGT offers a rare combination of value, dividend income, and growth potential—but only if its restructuring and lottery bets pay off.