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Howard Stutz

To say the least, Bally Technologies far from boring

26 August 2013

LAS VEGAS -- A few months ago I called Bally Technologies boring.

At the time, its chief rivals in the slot machine manufacturing sector were embroiled in a heated proxy fight (International Game Technology) or were sold (WMS Industries).

Las Vegas-based Bally Technologies, Inc. is no longer boring.

The company shattered internal financial records in fiscal year 2013, which ended June 30, growing profits 41 percent while reporting nearly $1 billion in overall revenue , an increase of 13 percent.

Coupled with the company’s July announcement that it was buying gaming equipment rival SHFL Entertainment for $1.3 billion, Wall Street analysts consider Bally the top-rated gaming equipment provider in the industry.

“We are confident the strength and building momentum inherent in Bally’s core business, coupled with the anticipated benefits of the pending SHFL acquisition, should allow Bally shares to outperform the broader market over the next 12 months,” Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski told investors.

Union Gaming Group Managing Director Bill Lerner said he views Bally differently than other gaming equipment manufacturers.

Results from Bally’s systems business, which grew 32 percent in the fourth quarter, provide a unique market for the company. Bally officials said the pipeline of management systems have supplanted similar products offered by rival companies in several markets, including Canada and South Africa.

Lerner said revenue and profits from systems should be valued differently than the financials reported from a traditional slot machine business.

“We value it on a free cash flow basis like other companies in its tech services group that provide software, hardware and systems, such as IBM, Oracle, Hewlett-Packard and Dell,” Lerner said.

Additional value in the company will be unlocked, Lerner said, once the SHFL deal is completed.

Bally has a thriving slot machine business to go along with its systems division, which provides slot machine management and bonusing capabilities to casinos.

SHFL will give Bally several table game management products and systems, a long line of proprietary table games, several electronic table game brands, and add to the company’s growing interactive business.

Bally told investors it expects to achieve $30 million a year in annual savings once the two companies are merged.

“While it will be some time before the SHFL deal closes, we are comfortable with the merits of this transaction as it makes Bally the most full-service supplier in the gaming equipment business,” Credit Suisse gaming analyst Joel Simkins told investors.

The much-anticipated Global Gaming Expo is a month away. During a quarterly conference call with analysts, Bally executives hinted about what the company will unveil on the floor of the Sands Expo.

The company said it will launch the slot machine “Pink Ladies,” a follow-up to the “Grease” theme.

Also, Bally is in the process of shipping a second version of the Michael Jackson King of Pop slot machine to casinos.

The new game, titled “Wanna Be Startin’ Somethin’,” features new bonuses and five of Michael Jackson’s most popular songs: “Bad,” “Billie Jean,” “Don’t Stop ‘Til You Get Enough,” “The Way You Make Me Feel” and “Wanna Be Startin’ Somethin’.”

Bally CEO Ramesh Srinivasan also told analysts the company was pleased with the success of its NASCAR-themed slot machine, but noted the brand doesn’t have global appeal like Michael Jackson. Still, Bally is producing a second NASCAR game.

The new machines are part of Bally’s wide area progressive network of games, which experienced a 38 percent increase in its installed base during fiscal 2013.

Eilers Research gaming analyst Todd Eilers said he expects Bally to exceed its fiscal year 2014 guidance to Wall Street of earnings per share from $3.70 to $4.05. The company reported earnings per share of $3.45 in fiscal 2013.

“We continue to believe that Bally will likely exceed the upper end of is range if current business fundamentals continue,” Eilers said.

In other words, Bally is far from boring.