Merriman Curhan Ford Initiates coverage of EGMI, and believe that the stock should be valued at $3 - 4
We are initiating coverage of Electronic Game Card Inc. (EGC) with a Buy rating and believe that the stock should be valued at $3-4. We like EGC’s unique technology which can be leveraged into several large end markets including gaming, education and promotions. We believe that EGC’s growth is primed to accelerate in 2H09 and 2010 as many of the new management’s efforts with product development and strategic partnerships yield results. Recent insider buying adds to our conviction regarding EGC’s prospects.
• Unique technology. EGC has developed a credit-card sized Game-
Card with microchip and a small LCD screen that can be loaded with simple games and/or content, and produced on a very low cost basis. EGC holds several technology patents, and has obtained Class II and III classification, and a GLI license for the gaming industry.
• Expanding end markets. The majority of the company’s revenue
comes from the Promotions segment where the EGC GameCards are
used by corporations as part of promotion and branding campaigns.
However, EGC is expanding into gaming (lottery, casinos) and
“edutainment” verticals with new distribution and content deals that should expand the addressable markets.
• Accelerating and profitable revenue growth. EGC grew revenue
by $4.6M in FY08 and is projected to increase by $5.3M in FY09 and by $11.3M in FY10. This growth is accompanied by profitability, which we believe is not fully reflected in the company’s valuation.
• Insider ownership. During the last twelve months, management
and the company’s chairman have bought shares in the open market
and own 35% of the company. In fact, the chairman bought
10M shares since he joined the company in September of 2008,
which further emboldens our conviction in the company’s prospects.
• Compelling valuation, in our view. With 40% growth in EPS
(fully taxed) in FY09 and FY10, we believe that the valuation multiples should expand to 25x-35x P/E (FY10E), implying a $3.00-4.00 price per share.
