For investors, the supplier side of the gaming industry has gotten smaller in recent years as IGT and Scientific Games led consolidations that saw the disappearance of such prominent public companies as Bally, WMS and GTECH.
However, the space may become more interesting now that IGT and SciGames have settled in to who they are, and as other companies emerge.
The new stories for IGT and SciGames start with lotteries.
Their historic investors knew them as slot companies and have had to learn the lottery component. Interestingly, lotteries give IGT and SGMS recurring revenue, just like the slot leasing business that for years attracted investors.
The recurring revenues of lotteries are, in fact, more stable than slot leases. The business is locked in by multi-year contracts and is not subject to the constant shifts of an installed base of machines.
Given that lotteries provide IGT with two-thirds of its revenue and SGMS with one-third of its, that’s a lot of stability.
Each company, of course, has its unique story. For IGT it’s cash flow and the stability of leadership as long-time CEO Marco Sala continues to lead the overall operation, and American and Interactive CEO Renato Ascoli brings his experience and unified leadership to the Americas.
For SGMS, the story is new leadership as Kevin Sheehan takes over for much-admired Gavin Isaacs as CEO. Though we have a lot to learn about Sheehan, he does offer the experience of having turned around an even more indebted company, Norwegian Cruise Lines.
That debt, itself, can be seen as something of a positive for longer term investors who think SGMS can steadily apply its free cash flow to debt reduction, thus freeing up more cash and lifting a stock price that is now weighed down by that debt.
But the story might get more interesting than just the Big Two. Here are some quick thoughts on several companies that might go public or become more liquid for US investors:
• Ainsworth. This company, which trades on the Australia Stock Exchange, is about to undergo a transformation as founder Len Ainsworth’s 53 percent ownership is bought by Novomatic.
Novomatic is a giant, privately held Austrian-based company with big ambitions for North America. Ainsworth has those same ambitions as is obvious simply by viewing its huge new Las Vegas headquarters.
Now, Ainsworth provides Novomatic with the public vehicle by which to pursue those ambitions, and Novomatic provides Ainsworth with the resources to pursue theirs.
Additionally, with the U.S. increasingly important to Ainsworth, and Novomatic now with a publicly traded component, it is not out of the realm of possibility that Ainsworth might someday be U.S.-listed.
• AGS. The former American Gaming Systems is another ambitious competitor starting to gain material market share as it enters Class III, expands into new markets and continues its push into the proprietary table game and shuffler businesses.
Led by former Shuffle Master COO David Lopez, AGS has a young management team that learned its stuff in Shuffle’s entrepreneurial environment.
What’s important about AGS is its owner, Apollo Global Management.
As a private equity firm, Apollo can be expected to someday monetize its investment in AGS. Apollo has been helping AGS grow so that monetization will be more lucrative what it happens.
Apollo may choose to sell AGS on that day. Or it might decide to take AGS public, giving stock investors another company to play.
• Aristocrat. This company has been the hot supplier of the past couple of years as CEO Jamie Odell’s strategy of focusing on the core business, emphasizing game content and pushing harder in North America is paying off handsomely.
Aristocrat stock is fairly liquid on the Australia Stock Exchange. The company has long held to the idea that it lists only there. But as North America becomes increasingly important, and more and more decision makers are located in Las Vegas, it would not be overly surprising to see a dual listing in the U.S. someday.
• Interblock. A few years ago, Interblock was just another of those little European electronic table game companies.
No more. The sleek black-and-red Interblock machines are showing up increasingly in American casinos.
Electronic tables—or ETGs as they are now commonly called—comprise a growing segment of gaming floors in the U.S. as they have been in Europe, and more recently in Asia.
Under the leadership of CEO John Connolly, Interblock intends to raise its profile considerably.
Like Novomatic, Interblock is privately owned by its founder. That means a monetization opportunity someday. And, like AGS, that could be selling the company, but it also could mean an IPO.
