GGRAsia – Casino suppliers ‘under meaningful pressure’: analyst

Casino suppliers ‘under meaningful pressure’: analyst

Nov 25, 2014 Newsdesk Industry Talk, Latest News, Top of the deck

The gaming equipment industry “remains under meaningful pressure”, warns Wells Fargo Securities LLC. Among the trends impacting the sector are negative replacement sales growth in the United States, market pressure from new entrants and casino operators shifting away from the participation game model – in which the casino and the manufacturer share the revenue the gaming machine generates – the brokerage said.

Casino operator consolidation and some closures, and a reduction in the size of slot floors is also adding to the challenges gaming suppliers are facing, especially in the U.S., a trio of analysts led by Cameron McKnight wrote in the handbook released on Friday for the upcoming 2014 Boston Gaming Forum. The annual conference, hosted by Wells Fargo, is to take place at the Langham Hotel in Boston on December 4.

“Given these challenging operational trends, operational risk remains elevated for gaming equipment manufacturers,” the analysts stated. But they pointed out that “industry risks are extremely well appreciated by investors and the industry could benefit from the recent wave of consolidation.”

U.S.-based specialist in lottery equipment and management Scientific Games Corp concluded last week the acquisition of slot maker Bally Technologies Inc in a deal valued at US$5.1 billion. The announcement was part of a raft of other merger and acquisition deals in recent months in the casino equipment supply sector marking a year of major realignment and consolidation in the industry.

This autumn however, a number of investment analysts expressed scepticism at the degree of leveraging involved in some of the merger and acquisition deals, versus the earnings prospects of the consolidated companies and the amount of cost savings that could reasonably achieved.

“With market-wide challenges at the top line, we see opportunities for manufacturers to derive savings from merger integration cost synergies, as well as more efficient operating/capital spend,” the Wells Fargo analysts said in Friday’s release.

They added: “We believe this industry consolidation will ultimately benefit the remaining players in the space.”