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Best of Howard Stutz

Gaming Guru

Howard Stutz

Analysts love Multimedia Games; investors less enchanted

15 November 2013

The analyst community has a love affair with slot machine manufacturer Multimedia Games, Inc.

Investors, however, expressed some skepticism.

Multimedia Games grew profits and revenues in both the fourth quarter and fiscal 2013, the Austin, Texas-based company said Thursday, but the company’s share price dropped 7 percent in trading on the Nasdaq.

Multimedia Games has cut into the market share of the major slot machine manufacturers and its products have been wildly praised by slot machine floor managers.

During fiscal 2013, which ended Sept. 30, the company’s slot machine sales increased by 27 percent over 2012. Multimedia Games had 12,440 slot machines in casinos where the company shares revenues with operators. The market is expected to grow in 2014 as the company moves into new states.

When Multimedia Games’ shares dropped $2.30 to close at $30.58, Brean Capital Markets gaming analyst Justin Sebastiano saw an opportunity.

“Multimedia games remains a compelling organic growth story in the gaming equipment sector,” Sebastiano said. “We suggest investors use today’s weakness as a way to purchase a stock that some felt had passed them by.”

Multimedia Games, which maintains a sales and marketing office in Las Vegas, said its net income for its fourth quarter ended Sept. 30 was $10 million, or 32 cents per share. A year ago, the company’s net income was $8.3 million, or 28 cents per share.

Analysts polled by expected Multimedia Games to report fourth-quarter earnings of 26 cents per share.

For all of fiscal 2013, Multimedia Games said its net income grew 19 percent to $34.9 million, or $1.14 per share.

Multimedia Games said fourth-quarter revenues increased 21.7 percent to $50.4 million from $41.4 million. Revenues for all of fiscal 2013 were $189.4 million, up 21.3 percent from $156.2 million a year earlier.

Multimedia Games Chief Executive Officer Patrick Ramsey cited the company’s licensing to sell slot machines to Nevada casinos as a primary reason for his company’s 2013 success.

“Our entry into Nevada significantly expands our total addressable market,” Ramsey said. “We are excited about the long-term opportunity to further expand the number of Multimedia Games slot machines on casino floors.

“We are just getting started in Nevada, Illinois and New Jersey,” he added, “and expect to generate revenues from Pennsylvania in early fiscal 2014.”

Eilers Research principal Todd Eilers told investors that Multimedia Games continues to post strong momentum in both game sales and gaming operations.

“Today’s sell-off creates a very attractive entry point for new investors and existing investors to add to positions as we anticipate another strong year based on our channel checks and survey data,” Eilers said.