This year’s Global Gaming Expo (G2E), a Las Vegas-based casino industry trade exhibition and conference, could be “the most important G2E in years” for listed casino technology suppliers, says a note from analyst David Katz of Telsey Advisory Group LLC.
“This year’s event bears greater importance than the past several and could have a greater impact on the related stocks,” he stated.
“Ultimately, some of the companies’ stocks have performed exceedingly well and they will need to make a case for further upside while others have underperformed and will look to the event to gain traction with investors.”
The G2E 2017 trade show takes place at Sands Expo at the Venetian Las Vegas, from October 3 to 5, with the conference portion of the event running from October 2 to 5.
“Our view on its [G2E 2017’s] importance is based on the operating environment for gaming equipment suppliers as well as their company-specific dynamics, including personnel changes, leverage and key product turnarounds,” wrote Mr Katz in a Tuesday memo.
His note came the same day that casino equipment maker International Game Technology Plc announced it had reached what it called a “patent cross-licensing agreement” with one of its biggest market rivals, casino technology and lottery services provider Scientific Games Corp.
“IGT has reached an inflection point in its product offerings and has guided toward a strong conclusion to the year based on the new product it is introducing,” said Telsey.
“Scientific Games has generated modestly positive quarters, which have a profound impact on the equity. Finally, Everi is gaining momentum with its new cabinets and content and expects to accelerate its sales and placements going into 2018, when it could refinance its most expensive debt. We also contemplate whether Aristocrat Leisure can continue its strong momentum in an increasingly competitive landscape,” added Telsey’s Mr Katz.
The latter references were to Everi Holdings Inc – a specialist in cash handling technology and electronic game content for the casino industry – and Australia-based slot machine maker Aristocrat Leisure Ltd, which also has a major presence in North American markets via its Aristocrat Technologies Inc unit.
IGT is the result of a US$6.4-billion leveraged merger – completed in April 2015 – between International Game Technology, a Nevada-based supplier of slot machines, and Italy-based lottery equipment specialist GTech SpA. IGT’s net debt as of June 30 stood at US$7.00 billion, according to its second-quarter results.
Scientific Games, initially a lottery equipment and management services provider, purchased the then top-four U.S. slot supplier WMS Industries for US$1.5 billion in 2013. Also in that year, slot machine and casino floor management system supplier Bally Technologies Inc acquired casino electronic tables games and electronic shuffler specialist SHFL Entertainment Inc, known by the brand name Shuffle Master, for US$1.3 billion. In November 2014, Bally – along with the Shuffle Master brands – was absorbed into Scientific Games in a deal valued at US$5.1 billion.
At the end of June, Scientific Games had total outstanding debt of US$8.18 billion, according to its second-quarter results, issued in late July.
Everi Holdings saw its net loss widen in the second quarter of 2017, despite the firm posting higher revenues. The Everi brand was formed in August 2015, following a US$1.1-billion cash-consideration merger in December 2014 of Las Vegas-based Global Cash Access Holdings Inc and Multimedia Games Holding Co Inc.
Aristocrat Leisure has been perhaps the most conservative – in acquisition spending terms – of the larger casino technology firms still standing following the flurry of consolidation seen in the sector since 2013.
In July 2014, the group agreed to acquire Video Gaming Technologies Inc – a U.S.-based gaming machine provider – for US$1.28 billion in cash. In February 2015, Aristocrat Leisure said the deal had been “highly accretive” to the group’s U.S. operations, more than tripling U.S. recurring revenue.
In July 2014 Aristocrat Leisure also announced the acquisition of all material assets of U.S.-based Paltronics Inc – a leading supplier of jackpot managers and display systems for casino games – including intellectual property relating to products. Aristocrat Leisure did not disclose the terms of the deal.
On August 10 this year, the firm said it had an agreement to acquire social gaming company Plarium Global Ltd for a consideration of US$500 million.
Aristocrat Leisure’s first-half fiscal year net profit for the period to March 31 rose 57 percent year-on-year, the firm said in a May filing to the Australian Securities Exchange.
The group said net gearing improved from 1.9 times at March 31, 2016, to 0.9 times at the end of March this year, due to earnings growth and significant free cash flow generation across the group.
An autumn 2016 report from Fitch Ratings Inc said Aristocrat Leisure had debt to earnings ratios “superior to [its] major U.S.-based gaming supplier peers,” providing “ample financial flexibility to counter the industry’s secular challenges”.
Referring to the North America regional market, Telsey stated in its Tuesday note: “Our view is that IGT and Everi should be modest takers of [market] share over the next few years while Scientific Games and Aristocrat could moderate [market share]. Perhaps more important is that the sale of slots in North America has become less important… given the broad-based business that each of the companies has become.”
The global industry for gaming equipment supply generated in 2016 a “total economic impact” of US$47.5 billion, supported more than 212,000 employees, including 55,000 direct employees, and paid a total of US$4.9 billion in direct wages and salaries, claimed a report released in May by the Association of Gaming Equipment Manufacturers (AGEM).
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Macau's Gaming Inspection and Coordination Bureau