Before COVID-19, gaming equipment provider Everi Holdings saw a 20% increase in revenues during the first two months of 2020 and was winning praise from analysts for its variety of products.
Then, casinos across the U.S. shut down for nearly three months in some cases due to the coronavirus pandemic. Everi’s balance sheet suffered from lost business.
Roth Capital Partners gaming David Bain thinks Everi is ready to rise once again. On Friday he initiated coverage of the Las Vegas-based company with a target price of $17 a share – more than 3.6-times Everi’s closing price Thursday on the New York Stock Exchange.
Bain noted the shocking increase in the price target in his report’s headline – “Yes, we know, but the valuation gets you there.”
The report boosted interest in Everi’s shares Friday, with the company closing the trading day at $5.98, up $1.32, or 28.33%. More than 17 million shares were traded, almost six times the company’s average daily volume.
Bain cited Everi’s potential in the financial services and technology sector (fintech), where the company is the market leader with roughly 70% of the casinos in North America utilizing the company’s technology and products.
Cashless and digital technology
COVID-19 has intensified the gaming industry’s interest in new technology, including cashless or digital payment products that remove the element of cash.
Everi already provides kiosks to casinos where customers can withdraw money from their debit cards directly onto a ticket voucher that can be used at a gaming table or slot machine. Customers set the amount they want to withdraw.
The company is testing a virtual wallet for casino customers, allowing players to use their mobile devices to activate slot machines. The app allows a patron to move funds from a debit card onto the platform, which can be tied to their player loyalty account.
Bain said the Everi’s “add-on technologies addressing casino loyalty, current cashless floor momentum, and outside four-wall opportunities” cannot be replicated by other gaming suppliers.
“The reasons for bifurcating Everi’s fintech (cash flow) valuation from gaming supply is clear,” Bain said. “Peers lack fintech, have less earnings visibility (which are) heavier weighted toward one-time sales, and most have less upside optionality, in our view.”
Gaming machines
In addition to financial services, Bain said Everi’s gaming operations – slot machines where the company shares in revenue – is expected to account for roughly 78% of the company’s 2020 calendar year revenue.
“Everi (is) also more levered to tribal versus commercial markets with lower COVID geographic and authoritarian concerns and superior recent historical organic growth,” Bain said.
He cited Oklahoma’s Indian gaming market, where the company has roughly 58% of its nearly 14,800 gaming operation machines, including 4,000 games with the Chickasaw Nation. The flagship of the tribe’s casinos is WinStar World in southern Oklahoma, which draws customers from the North Texas region, including the Dallas-Fort Worth area. WinStar World operates more than 8,500 electronic gaming machines.
“We anticipate the growth trend in tribal to accelerate further during COVID and a COVID recovery as locations tend to be more local, and are less amenity focused to draw customers,” Bain said. “While Oklahoma has seen a rise in COVID cases like many jurisdictions, it is far less a hotspot than other markets. Our checks cite (gaming revenues) continuing close to pre-COVID levels, though we continue to monitor short-term impacts from pent-up demand/stimulus/other entertainment options beginning to re-open.”
Dealing with COVID-19
Everi, in the early days of the pandemic, reduced the company’s costs and spending, furloughing 80 percent of its workforce while continuing to cover health care plans and associated costs. CEO Mike Rumbolz and the company’s board reduced their salaries to zero, and the executive team reduced their salaries by approximately 70 percent.
In March, Everi drew down $35 million on its revolving credit facility to provide additional near-term liquidity and canceled or delayed material capital expenditures. The drawdown gave Everi $161 million in total liquidity. In April, the company secured a further $125 million financing agreement and obtained changes in its credit agreements with its existing lenders
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
