Truist Securities hosted an investor luncheon with a high-ranking representative of Play AGS. Although Truist analyst Barry Jonas saw Play AGS as “a high conviction name with strong organic growth,” his price target didn’t budge off $12 per share. He did maintain a “Buy” rating on the stock, presently trading around $7.45 per share.
“AGS is focused on continuing execution and very positive on its positioning following a 3-year strategic transformation,” reported Jonas. He added that he thought a selloff in AGS stock following its third-quarter financials was “largely a function of liquidity and trading mechanics, but also highlighted buyside expectations.”
Play AGS management previewed fourth-quarter earnings, showcasing an operating performance that Jonas deemed “strong.” AGS Senior Vice President of Investor Relations Brad Boyer attributed this to a strategic realignment of the company dating back to 2019. Revenue propellants also included “solid” game performance and greater content, as well as sales of the Spectra game cabinet.
Boyer said the strategic reorientation would drive ongoing growth regardless of gross-gaming-revenue trends in markets where AGS is present. He also noted AGS was still “underrepresented for its fair share on slot floors.” The company could pick up momentum from casino decision making that Jonas characterized as “increasingly analytical” and Boyer believed would redound to AGS’s benefit, in light of its product.
AGS projected stability in both R&D costs and company size. Post-COVID supply-chain issues were described as “cycled through,” with AGS boasting a distribution apparatus marked by geographical diversity, in Jonas’s estimation.
Boyer described the current generation of Spectra cabinets as a “significant” step up from their Orion precursors. Highlights included interchangeable parts, modules, and content compatibility across multiple platforms. “This should drive both top-line and margin growth for the segment,” Jonas reacted, adding that Boyer “also highlighted increased interest from large public corporates from historical levels.”
Tribal gaming in Texas, particularly the Class II casino operated by the Alabama-Coushatta Tribe, was seen as “potentially sizable, albeit slow to develop” and therefore to be pursued. Other growth opportunities were for slot routes in Illinois, although it would take additional investment from Play AGS to enter the Land of Lincoln.
Management was keeping a watching brief on the Australian market, some 200,000 machines strong. This was seen as “particularly interesting,” although AGS has no slots on the ground at present.
Table-game shuffler business continues to ramp up, with 290 units in the market and “growing with a recent high-profile Vegas Strip customer placement,” with a total addressable market of 5,000 to 6,000 units. Play AGS is working on a multi-deck shuffler, but has no stated timeline for going to market with it.
Boyer emphasized the reception received at Global Gaming Expo for the latest version of AGS’s Bonus Spin Xtreme electronic table game, with its increased functionality. Jonas wrote that AGS “was pursuing broader geographic penetration and noted it had received approval to place table products in under-penetrated markets, and was pursuing additional state regulatory approvals.” Presently, the company has fewer than 500 electronic table games deployed.
In terms of its balance sheet, Play AGS was aiming to lower its leverage from 3.4 times cash flow to three times. Paths to this goal included growing cash flow faster than capex reinvestment and from debt refinancing. Stock buybacks were also on the table.
Boyer “felt its improving balance sheet could potentially support a credit agency re-rating and could see a resulting benefit to interest expense,” Jonas chronicled. While consolidation “could make sense” for the company, present market conditions made that a high hurdle, in Jonas’s opinion. He concluded, “AGS could potentially be an attractive strategic acquisition candidate given its strong Class II business.”
