ROTH Capital: EGMI 3Q Beats on Strong Promo Card Sales, Maintain BUY, Raising PT to $2.25
- 3Q beats on strong Promo sales. EGC reported strong 3Q results
beating our EPS est by a penny. Total revenue of $4.1M (+39% y/y, +39% q/q) came in $100k above our est on strong promotion card sales while EPS of $0.04 (+28% y/y) also beat on higher than expected GMs w/ a greater mix of royalty and licensing fees. - Healthy Promo sales. EGC sold ~1.7M promotional cards in the qtr vs. ~1.5M the prior year. We estimate the ASP to be $1.32/card. More
importantly, recurring revenue including licensing fees and SciGames and Sovereign royalty payments was ~$2.0M, or roughly half of revenue. - New product rollout. Mgt now expects to begin shipping its iQuizCards to international customers in 4Q09 followed by domestic shipments in 1Q10. Mgt also hopes to ship its Thomas & Friends ePlay cards to international customers in 1Q with U.S. sales in 2H10. Finally, China eLottery ticket sales are expected in 2H10 following a successful trial in 1H10.
- Strong FCF & Bal sheet. EGC generated ~$2.0M in FCF in Q3 and ended the qtr with $12.7M in cash. Conv pref stock declined from $3.3M to $2.8M placing the company in a net cash position of $9.9M. Furthermore, we note EGC holds another $8.1M in investments that mgt intends to monetize by mid CY10.
- Maintain est’s, introducing FY11. Mgt maintained its FY09 EPS guidance of 14c and we are leaving our 14c est unchanged reflecting the upside to 3Q while lowering our 4Q est by half a penny to reflect a slight delay in Thomas ePlay shipments. We are also introducing FY11 revenue and EPS est’s of $39.1M (+42% y/y) and 25 cents, respectively.
- Maintain BUY, raising PT to $2.25. We reiterate our BUY rating and we raise our PT from $2.00 to $2.25. We continue to like the stock at current levels with shares trading for only 14.7x and 11.8x our tax adjusted FY10 and FY11 EPS estimates. Further, we note our est’s do not include any China lottery sales and we would likely take up our numbers and PT following a successful trial.
Source: Roth Capital
Disclosure: LONG EGMI
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finally ROTH increases the PT and specifically does not include China, STRANGE nothing mentioned about POKEN Opportunity which is nearly as exciting
William:
Yeah I know. I agree on POKEN as I believe it will be a sleeping giant for them over the next few months. Then the giant will wake up.
Ian
Good CC. Lots of opportunity here just in the biz channels they are in.. I’ve been trying to figure out what to think of Poken. So far no one I’ve asked has heard of it, which includes several 20 to 30 year old’s who are pretty up on the newest thing.
I’d love to have had Poken at some of the trade shows I used to attend and display at but I’m not sure I’d be too interested in carrying one around instead of biz cards unless it really catches on and they become ubiquitous. Am I missing something here?
The other one I am having a hard time understanding how it fits in is the bar code pen thing-a-ma-jig.
What the heck is THAT about? Ian, are you up on these items?
I believe a lot of retail and large brands are excited about Poken as its a clever/useful point of sale for social networking. I’m looking for more information to be released on this. It was a big hit at the investors show I just got back from.
The pen is just a way to transform a simple game card into a web portal. If I’m playing on a quiz card, scan the back and it takes me to an internet site where there is further interaction, game play, or points rewarded.
They never talk about their “technology”, what exactly is it and why no one can replicated. I couldn’t find any meaningful description of it in the 10-K. They don’t apparently even have patents granted, just “pending” according to the 10-K. A chip-on-a-”credit-card” is not exactly a novel idea, yet why isn’t anyone else trying to do anything in this space if this is such a great opportunity? I am having some trouble with this…
They do hold some patents and have some pending, I remember looking them up and i believe they are even mentioned in their SG agreement. It is all about making a cheap product that they make high margins on that can be distributed down multiple verticals. This is why the game cards will be a huge success in china and other places..cheap to produce with margins for distributors and egmi. But the future is the other technologies they have brought in and will bring in to the company and then distribute them down the same verticals.