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Analysts Bullish as Slot Manufacturer Re-emerges With New Line of Games

6 August 2003

by Rod Smith

WMS Industries Inc., once a top slot machine manufacturer, Tuesday won renewed respect from Wall Street as it prepares to debut a new line of games at Global Gaming Expo Sept. 16-17 in Las Vegas.

J.P. Morgan Securities Inc. initiated coverage with an overweight, or buy recommendation, predicting a six-month appreciation of 37 percent to $24 a share.

"WMS is emerging from two years of self-imposed exile as a manufacturer of gaming devices," J.P. Morgan said in a research note distributed to investors.

"Prior to FY01 (June), WMS had an 18 percent share of the slot market and dominated the video segment. Lack of system integrity allowed customer cheating in 2001 and led to WMS' market share plummeting to nearly zero in FY03," the investor advisory said.

Also, Deutsche Bank upgraded shares of WMS to account for the "company's near-term re-emergence from its technology improvement program and move toward a commercial launch of its next generation operating system and cabinet."

"Based on conversations with our regulatory contacts, WMS is on track to receive the approvals they need to start placing its products on slot floors in September or October," said Deutsche Bank analyst Marc Falcone.

"We expect WMS to arrive at G2E with 'guns blazing.' It is our anticipation WMS will show at least 40 new titles," he said. Early indications suggest slot floor managers are reacting positively to the new line of WMS products, he said.

"Slot managers tell us WMS always had high-earning games and, assuming its next generation products build on past strengths, the company should regain share," Falcone said.

Slot managers are looking for a viable third slot supplier, besides International Game Technology and Alliance Gaming, and with Aristocrat fading fast as well as limited penetration from other foreign entrants, "WMS has a tremendous opportunity to catapult ahead of its competitors near-term," he said.

WMS is ready to come "out of the penalty box" and "we think it could regain its 10 percent to 15 percent market share by the end of fiscal 2005 with sales of 15,000 to 20,000 units, Falcone said.

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