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Non-Tech : ANCHOR GAMING (SLOT): Will it bounce? -- Ignore unavailable to you. Want to Upgrade?

To: The Irb who wrote (463)	6/28/1999 6:46:00 PM
From: Zhivago	Respond to of 508

Hang on my friend. Slot was at 84.00 not to long ago. LOL, Zhivago

To: The Irb who wrote (463)	6/28/1999 9:45:00 PM
From: dr.john	Respond to of 508

An update on Anchor Gaming (SLOT: 47) part -1- I) Anchor Gaming's merger with Powerhouse Technologies (PWRH) SLOT is completing its merger with Powerhouse Technologies (PWRH). SLOT bought on the cheap a well managed company with little debt (debt/equity <0,2) which showed strong results as of lately. The purchase price of 280 million in equity (19,5 USD/share) and 60 million in debt, which will be paid all-cash (remember that SLOT has over 80 million cash on hand and no debt). The transaction will be accounted for using the purchase method of accounting and is expected to ve neutral to slightly accretive to Anchor within the first full year after closing. Through the PWRH merger SLOT expands its three own business-lines (gaming-machines, casinos, gaming route) and enters into the on-line lottery market, as well as into the racing-track wagering systems market. 1) PWRH most important business segment, on-line lottery (AWI, Automated Wagering, Inc), represents a high quality source of recurrent revenue. AWI has a only 18% market share of North America's lottery contracts (the lion's share going to G-Tech), but has recently outbid its competitor, G-Tech in several large and smaller multi-year contracts. AWI has a good chance to increase its market share when over 10 domestic on-line contracts are scheduled for procurement through 2000. Several international opportunities have been seized last year, as well. While the domestic lottery market is rather mature, the international market is growing rapidly. 2) Through VLC (Video Lottery Consultants) PWRH has a 40% market share in the video lottery market (machines and central system contracts). Its coin-free technology made successful inroads into the casino markets. VLC's machine pipeline increases SLOT's market share (currently about 5-7% of the North American casino gaming machines). PWRH's excellent R&D-team is a welcome addition to Anchor Gamings existing team. 3) In February 1999 PWRH opened the Sunland Park Casino, NM, a racetrack casino in a low competition environment. SLOT already owns two of the most profitable casinos in the USA, the Black Hawk Central Station Casino and the Colorado Grande Casino. Until recently, these two casinos have been in a low competition environment, which however has changed due to the opening of several bigger casinos in the vicinity. While still being hugely profitable, SLOT's Colorado casinos probably will not show the historic returns, as higher promotional costs diminish the bottom line somewhat. Therefore, Sunland Park is a welcome addition to SLOT's casino portfolio, and Anchor Gaming's management team is bound to optimize profit the way they did it in Colorado. 4) PWRH's United Tote (37% market share in North America for parimutuel racetrack systems) existing relationship with existing racetracks could proof beneficial if legislation allows the construction of more casinos on existing racetracks. 5) PWRH has a profitable gaming route in Montana, which expands SLOTs very profitable gaming route in Nevada. SLOT has long-term contracts with stores such as Smith's, allowing for placing gaming machines for a fixed fee in these stores without sharing the profit. SLOT's gaming route is a slow-grower, but a very reliable and higly profitable source of recurrent income. continued on---->part 2

To: The Irb who wrote (463)	6/28/1999 9:49:00 PM
From: dr.john	Respond to of 508

----> continued from part 1 An update on Anchor Gaming (SLOT 47): part 2: II) Anchor Gaming's business in FY1999: some bumps in the road uphill SLOT has consistently turned in outstanding results from 1990 -1998: revenue CAGR 44%, net income CAGR 66%, EPS CAGR 49%. Operating margins climbed to over 50%, net margins to 29%, return on asset and on equity 34% (no debt, but plenty of cash on hand). Insiders own about 40% of the outstanding shares. SLOT's share price rose from 25 to 95 in two years, but cam down to 33 early this year, to recover to the present 45. What went "wrong" is that in FY1999, SLOT's earnings and EPS will not grow, or might even fall 5%, as compared to FY98. We should now bear in mind two things: first, FY98 EPS increased 98% over FY97. Second, net profit margin continues to be excellent in FY99, ie above 25%. Therefore it is better to view SLOT's present performance as a break on a highly profitable level, not comparable with the fate of, let's say, drilling companies or semiconducter equipment companies, which turn in outstanding results for a couple of years and losses during the next cycle. The reason for SLOT's continued outstanding profitability (the company still earns 25cents on each dollar of revenue) lies in SLOT's business concept of having diverse businesses with a high level of RECURRENT earnings: 1) the most important business-segment, gaming machines (ca 50% revenue and 75% of income) is built on recurring revenues: instead of selling gaming machines to casinos they install the machines for free, but take 20% of the profit ( i.e. each time the machine is played 20% goes to Anchor Gaming). Of course SLOT has its own service team ensuring that the machines function perfectly. Three factors hampered growth this year: the growing maturity of many existing games, resulting in less average play per machine; competing successful new games (such as "Elvis", "Monopoly"), were stronger than SLOT's own new machines (such as "Cash-Ball 1", which disappointed); and an increasing unwillingness by some casino-owners to share profit 80/20. These three factors led to a decrease in number of Anchor Gaming's stand-alone gaming machines (which means loss of market share, part of which was taken by PWRH's games). Anchor Gaming's management team is confident that its soon-to- be-released new games (an upgraded, more user-friendly "Cash-Ball 2", and new games, such as "Casino Bowling") should take back market share. (The casino owner has to go with the wish of the customer and must place the "hot" games; if not, the customer goes to the casino next door). On the other hand, Anchor Gaming's 50/50 joint-venture with IGT (the 800pound gorilla of gaming machines) is continuing to flourish: there are over 6000 Wheel of Fortune machines installed and connected to a WAP (wide area progressive) system, and new Anchor games will be introduced into the WAP's. Furthermore, Anchor gaming is in the final stage of releasing the so-called "conversion kits" to casinos. Based on the foundation of a patented technology (owned by Anchor Gaming) conversion kits aim at upgrading old "single event" machines into more profitable "multi-coin, multi event" machines, (including new "look" features). Not only will SLOT upgrade the machines -again- for free (and take a certain percentage of the profit, each time the upgraded machine is played), but, thought its joint-venture with IGT, Anchor Gaming will all of a sudden have access to IGT's greater than 70% market share in gaming machines, many of which are single event machines. In other words, instead of having 5 plus percentage of market share, SLOT will gain access to potentially 70% of all gaming machines, -on a recurrent revenue base. ---->continued on part3

To: The Irb who wrote (463)	6/28/1999 9:55:00 PM
From: dr.john	Read Replies (3) \| Respond to of 508

--->continued from part 2 An update on Anchor Gaming (SLOT, 47) part 3: 2) Then, there are SLOT's casinos, which have placed in a low-competition environment until recently (and have been amongst the most profitable casinos in the USA: see above). However, the climate is getting tougher in Colorado, as new and bigger casinos have been opened in the vicinity. Therefore, profitability of Anchor Gaming's two Colorado casinos declined somewhat this year (mainly due to higher promotional costs and higher salaries), which does not prevent them from being very profitable. PWRH's Sunland Park casino (which operates in a low competition environment, represents a welcome addition to the casino portfolio (see above). 3) As mentioned above, SLOT's gaming machine route continues to be a profitable high quality source of recurrent revenues. All told, trading at about 9 times current EPS, 2,5 times book value and 2 times sales, SLOT appears to be cheap, even considering the possibility of several legislation issues which might impact the growth of the gaming industry in Northern America. The current, and probably the next quarter results might be somewhat "disappointing", until the effect of the new machines and conversion kits "kick in", but the long-term outlook is very promising. Therefore, TheIrb, you have to decide your-self whether SLOT looks promising, or not. I, for my part, do not even DREAM of selling; if anything I buy. regards DrJohn