Roth Capital Reiterates Buy and Ups target to $2.00
2Q in-line, New Products to Drive 2H Growth;
Reiterate BUY
2Q results in-line. EGC reported strong results in-line with our EPS est. Total revenue of $3.1 million (+23% y/y, +4% q/q) came in just shy of our $3.2 million est. However, EPS of $0.03 (+50% y/y) was in-line as GMs of 80.4% came in above our 78.4% est as EGC continues to add high margin recurring revenue and drive lower product costs.
Revenue breakdown. EGC sold ~1.6M game cards at an estimated ASP
of $1.25/card and recurring revenue including SciGames and Sovereign royalties was ~$1.1M, or 35% of revenue.
New products hitting the market. Mgt expects to begin shipping its new QuizCards to international customers in 2H09 followed by N. American shipments in 1Q10. Mgt also expects to ship Thomas & Friends Educational GameCards to international customers in 4Q with U.S. sales likely to follow in 1H10.
Strong FCF & improving bal sheet. EGC generated $1.0 million in FCF in Q2 and ended the qtr with $11.0 million in cash/marketable securities. Conv pref stock declined from $4.5 million to $3.3 million placing the company in a net cash position of $7.7 million and EGC also has $7.4 million in investments that it intends to monetize by mid CY10.
Mgt reiterates guidance, increasing PT. Mgt reiterated its FY09 revenue and EPS guidance of $17 million and $0.14. We are leaving our ests unchanged, but we're taking our PT to $2.00 (from $1.75) to reflect consistent execution, an improving balance sheet, and potential upside to our estimates from a signed def. agreement with China LotSynergy to produce electronic lottery tickets for the Chinese market.
Thesis/Valuation. We reiterate our BUY rating as we continue to like the stock at current levels with shares trading for only 19x and 13x our tax adjusted FY09 and FY10 EPS estimates despite expectations for 40% earnings growth.
Shares of EGMI currently trade for 19x and 13x our FY09 and FY10 tax adjusted EPS estimates. We note the peer group of gaming equipment suppliers now trade for 20x and 15x CY09 and CY10 estimates, respectively. Our new price target of $2.00 (Previously $1.75) is based on a 15x multiple to our tax adjusted FY10 EPS estimate.
