NEW YORK ( TheStreet) - Shuffle Master ( SHFL), Bally Technologies ( BYI), WMS Industries ( WMS), Gaming Partners International ( GPIC) and Entertainment Gaming Asia ( EGT) are five casino services stocks with up to 40% upside, according to analysts' 12-month price targets.These companies provide gaming equipment and products to casinos, hotels and resorts. The products supplied are both non-consumable and consumable. Non-consumable products such as gaming chips, gaming furniture, and table accessories have a useful life of several years. Consumable products such as table layouts, cards, and dice represent recurring revenue for the companies. Revenue growth for these companies depends on the spending plans of casino operators and new casino openings. However, the economic slowdown in the US has taken its toll on casinos. To offset this downturn, casino operators are looking for lucrative growth avenues, especially the Pan-Asian markets (Macau and Singapore). Casino revenue in Macau, the world's biggest gaming market, rose 48% in March to $2.51 billion, the Macau government revealed recently. Growth comes on the back of a solid 2010, during which Macau witnessed 65% year-over-year growth, beating analyst forecast. Aaron Fischer, head of Asian consumer & gaming research at CLSA Asia Pacific Markets, has recommended a buy on the sector as he expects a growth of 25%-30% during the next two years. Singapore, on the other hand is witnessing tremendous growth within just one year of the government opening the region to the gaming industry. According to a report from PricewaterhouseCoopers, Singapore is set to overtake South Korea and Australia this year, to become the second-largest Asia-Pacific casino market. PwC estimates Singapore's casino gaming market at $2.8 billion in 2010, which is forecast to grow to $5.5 billion in 2011 and $8.3 billion by 2014.
2. Gaming Partners International is a manufacturer and supplier of casino table equipment. Its products include gaming chips, table layouts, playing cards, gaming furniture and table accessories, dice, radio frequency identification device (RFID) readers and software, and roulette wheels. The stock has gained 13% during the past one year, while it trades at a PE of 12.79, the lowest in the pack. During the year ended Dec. 2010, total revenue grew 20.9% to $59.9 million from $49.5 million a year earlier, driven by higher segmental revenues. Revenue from sale of casino chips, which contributed 65% to total revenue, increased 20% to $39 million, while revenue from table accessories and other products, and gaming furniture rose 43.7% and 61.8%, respectively. Net income soared to $4.4 million or 53 cents per share, compared to $1 million or 13 cents per share in 2009. Geographically, revenue from the US increased 32.5% to $30 million, while revenue from Asia, comprising of Macau and Singapore, increased 10% to $22.5 million. Furthermore, cash and cash equivalents surged to $11.4 million from $3.2 million. At Dec. 31, 2010, the company's backlog of signed orders for 2011 stood at $17.0 million, with $14.1 million generated from Europe and Asia and the remaining from the US. As of Dec. 31, 2009, the backlog for 2010 was $11.8 million, consisting of $8.9 million from Europe and Asia and $2.9 million from the US. The company formed its subsidiary GPI Asia in Dec. 2010, through which it intends to market its products in the Asian casino market. Later in 2011, the company plans to launch production of products, currently manufactured in France and Mexico, in Macau.
1. Entertainment Gaming Asia contracts with venue owners or operators of resorts, hotels and casinos for placing Electronic Gaming Machines (EGMs) on a revenue sharing basis and directly acquire and install the EGMs and other gaming peripherals at relevant gaming venues. As of Dec. 31, 2010, the company had 2,039 EGM seats with 492 held in inventory and 1,547 in operation. The stock has gained 40% during the past one year. The company currently has customers in Macau, Melbourne, Perth and Sydney. Its major competitor for gaming chips and plaques is Gaming Partners International. During the year ended 2010, total revenue surged 42% to $22.2 million from $15.6 million a year earlier, attributable to higher revenue from the Electronic Gaming Machine (EGM) segment. EGM revenue more than doubled to $14.3 million from $7 million, driven by a 19% increase in seats in operations coupled with a 31% increase in average net win per unit per day. Moreover, revenue from non-gaming products increased 61% to $6.6 million, whereas table game products' revenue declined 71% to $1.3 million. The company reported a gross margin of 29% for 2010 as opposed to a negative margin of 14%. Subsequently, net loss narrowed to $5.2 million or 5 cents per share, compared to $26 million or 23 cents per share a year ago. Cash and cash equivalents more than doubled to $10.2 million from $4.2 million at the end of Dec. 2009. During May 2010, the company bagged a license to open a casino hotel in the Takeo province of Cambodia. As part of its growth strategy, the company plans to operate regional casinos under the Dreamworld brand focusing on selected Pan-Asian emerging gaming markets. >>To see these stocks in action, visit the 5 Casino Services Stocks to Play portfolio on Stockpickr.