PlayAGS Low-cost Inventory With Debt Discount Kicker

Posted on: March 10, 2023, 03:03h. 

Final up to date on: March 10, 2023, 03:24h.

On a dismal day for the broader market and gaming equities, gaming gadget producer PlayAGS (NYSE:AGS) cobbled collectively some upside following a stable fourth-quarter earnings report.

A scene from a PlayAGS gaming machine, above. Analysts say the inventory is reasonable. (Picture: Neglected Alpha)

These outcomes are up to now, and whereas the slot machine maker didn’t provide up particular earnings steering for the present quarter, the Las Vegas-based firm stated it’s making an attempt to drive leverage all the way down to a variety of three.25x to three.75x. Analysts applauded the trouble.

(That) implies earnings earlier than curiosity, taxes, depreciation and amortization (EBITDA) steering of ~$130 million-150 million; nevertheless, administration famous at present ranges, they’d obtain midpoint or higher, implying $140 million-plus,” wrote Macquarie analyst Chad Beynon in a word to shoppers at present.

He reiterated an “outperform” ranking and an $11 worth goal on PlayAGS inventory, implying upside of 65.1% from the March 9 shut. The fourth quarter of 2022 marked the ninth consecutive three-month interval wherein the corporate topped analysts’ EBITDA estimates.

PlayAGS Has Makings of Worth Play

Assuming PlayAGS does generate 2023 EBITDA within the $140 million, that might suggest the inventory is deeply discounted at present ranges as a result of $140 million is greater than half the corporate’s present market capitalization of $233.36 million.

Based mostly on Beynon’s 2023 EBTIDA estimate of $144 million, PlayAGS trades at an enterprise worth/EBITDA a number of of simply 5.5x with a free money move yield of 14%. Because the analyst notes, there are potential 2023 drivers with which PlayAGS can shut the valuation hole with friends whereas presumably accruing share worth appreciation.

“With ~70% of the enterprise mannequin recurring and home put in models in a stable place, AGS is nicely positioned to construct the enterprise in ’23 from increased unit gross sales (we’re projecting excessive singles), continued premium put in placements, increased desk income from the PaxS and development in interactive (new recreation content material/offers). Backside line, whereas we’re nonetheless forecasting mid[1]singles income/EBITDA development, present developments (document Jan) and 2H catalysts might show this to be conservative,” added Beynon.

PlayAGS Can Compress Valuation Hole

The Macquarie analyst isn’t alone in his pondering on PlayAGS. Stife’s Jeffrey Stantial noticed that if the corporate correctly executes this yr, prior analysis and growth and associated affords might repay for traders.

Regardless of already spectacular development in premium installs over the previous two years, we see important runway nonetheless left (friends common >40% combine) with the timing of R&D investments suggesting momentum ought to proceed by way of 2023. Administration additionally highlighted product momentum in non-premium leased content material, buffered by the profitable launch of Spectra and preliminary high-denom content material,” wrote Stantial.

He reiterated a “purchase” ranking on PlayAGS with a $10 worth goal. The common worth forecast on the identify is $11.13.

Coming into Friday, the inventory was up 29.80% year-to-date, making it one of many best-performing gaming equities of any stripe.



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