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Making the Call

The fourth-quarter conference calls have been predictable, but these companies stood out

Making the Call

Earnings reports for the December quarter have come in about as expected—booming Asia, recovering Las Vegas, choppy among regional casino operators, and a challenging environment for gaming suppliers.

But three companies stand out as of this writing—Bally Technologies, Multimedia Games and Ameristar.

Even in the difficult environment, Bally managed to both blow past analyst estimates and offer a bullish view into the near future.

Multimedia Games gave strong proof that it can make the transition from a regional Class II slot machine maker to a national Class III supplier, with a nice kicker from its central determination system in New York.

Ameristar once again showed that it is a most excellent casino operator managing to increase EBITDA and score record financial performance in every measure despite the slow economy.


Bally scored big in every measure:
• Sales revenue                   +16 percent
• Gaming operations            +11.8
• Systems revenue              +16.4
• Average sales price           +12.8
• Wide-area progressive
   installed base                   +36 percent

In addition, BYI managed to buy back shares and pay down $19 million in debt.

BYI got a boost from the new Resorts World slot casino in New York, where it has more than 50 percent of the games on the floor.

The future looks promising, as the backlog of systems orders grows, the economy recovers—meaning consumers are spending more in recurring revenue machines, as its latest cabinets and slot platform continue to roll out, and as casinos eagerly await the newest participation game titles, Michael Jackson and Grease.


MGAM is starting to look like the little engine that could.

For years, MGAM flailed away at trying to diversify from its shrinking base of Class II machines in Indian casinos, primarily in Oklahoma.

Now, under relatively new CEO Patrick Ramsey, and with industry veteran Mick Roemer leading sales, MGAM is succeeding in its strategy to focus on developing its own proprietary games and on expanding nationally into Class III markets.

Meanwhile, it has signed an agreement with its biggest customer, the Chickasaw Indians of Oklahoma, which essentially protects its footprint in the giant WinStar casino for several years. That gives investors assurance that MGAM will not erode its historic business while entering new markets.

MGAM is another company benefiting from the Resorts World New York opening, as it operates the central determination system that all of the state’s VLTs connect to. In turn, MGAM gets 0.75 percent of all slot revenue generated in New York.

With Resorts World cranking out $50 million-plus a month, that’s a nice annuity.

Finally, even though the stock has more than doubled in recent months, it’s still inexpensive at 4.6 times enterprise value to trailing EBITDA and with a price-to-earnings-growth ratio of just 0.75.


That Ameristar managers are among the best in the business is not a surprise. The company has long produced great EBITDA margins.

But to be able to produce record numbers across the board in an environment that has challenged all regional casino operators is a very good sign for what can happen when the economy hums again.

And ASCA produced those results while paying down debt and buying back shares.

Further, ASCA has restructured the company in the past year, reducing the number of shares from 59.5 million to 34 million and putting itself in position to resume searching for growth opportunities.

At present, ASCA is looking to acquire underperforming properties that can benefit from its management skill.

But the company is confident enough of its financial condition that it also is competing for the casino license in western Massachusetts against Penn National, MGM Resorts and Mohegan.

CEO Gordy Kanofsky thinks Massachusetts can be a winner, pointing out that the 50 miles around Springfield has 500,000 more people and 28.5 percent higher household income than St. Louis, which is ASCA’s most profitable market. And where Ameristar competes against five other casinos in greater St. Louis, it would have Springfield all to itself.

Ameristar has been a story of a disciplined management that prepared for the recession early, putting it ahead of the curve in getting expenses down, thus able to convert added revenue to the bottom line.

Going forward, the attention on ASCA’s regional casino peers will be focused on the spate of casino openings this year and how they will play out in markets that no longer have the advantages of monopolies or oligarchies.

That will affect a number of companies, but it will especially put a spotlight on Penn National, also known as a disciplined operator that spends judiciously.

PENN has both the greatest number of new projects opening and faces cannibalization from other new projects, presenting some very interesting scenarios.

PENN disappointed some investors with its conservative financial guidance for the year.

However, there is a flip side to that. If new properties in Ohio and Kansas City are revenue home runs, there’s a strong possibility of an earnings pop that could surprise investors to the upside, thus rewarding those who get in early.


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