Rewarding opportunities for investors who look beyond the expected
There's a lesson that investors interested in the gaming industry can take from those who play the games themselves: The greatest rewards often go to those who find overlooked opportunities and turn those insights to their advantage. In today's market, that means turning to companies that operate in key areas of the industry but that may not have the name recognition of larger casino operators. By supporting strong-performing-but-lower-profile operations, investors may be able to disproportionately benefit from their gains compared to investments in more broadly owned gaming equities. Notably, SHFL entertainment, Inc. (NASDAQ: SHFL) and Gaming Partners International (NASDAQ: GPIC) have each established themselves as the premier providers of casino gaming equipment and supplies - particularly of electronic innovations - while companies such as Littlefield Corporation (OTCQB: LTFD) and Kinbasha Gaming International (OTCQX: KNBA) stand out for their distinctive game playing opportunities.
SUPPLIERS DRIVING GAMEPLAY, REVENUE ENHANCEMENT
The cost of operations in the gaming industry can be considerable - according to the American Gaming Association, commercial casino companies spend 37% of gaming revenue on payments to suppliers of equipment and services that power the customer experience. No surprise, then, that investors are likely to find a couple of budding businesses to follow among those suppliers.
For the past 30 years, U.S. gaming device maker SHFL entertainment, Inc. has made a name for itself as a go-to player for electronic innovations that improve the customer experience and drive greater revenue for operators. The company is particularly associated with such table game accessories as the iShoe Auto, iDeal and Deck Mate shufflers, devices that facilitate improved gameplay at perennial casino favorites like poker, blackjack and baccarat. At most casinos today, SHFL's accessories are as central to these games as the cards themselves because of their ability to increase game speed, boost security, improve card longevity and decrease repetitive stress injuries for dealers.
At the roulette table, SHFL's Easy Chipper D brings improved chip handling for faster sorting and noise reduction. Using state-of-the-art technology, the Easy Chipper D features USB connectivity for log book entries and other data collection, as well as a touch screen for seamless operation. The market has responded favorably to this and the company's other products, and SHFL has experienced an impressive 14% increase in its electronic gaming machine shipments over the past 12 months.
Gaming Partners International is another company that uses advanced technology to improve operations - in particular, through the use of RFID (Radio Frequency Identification Device) technology placed into casino chips. GPIC embeds high and low frequency devices into chips to generate a variety of cost-saving and security benefits - essential advantages when considering that casino chips are essentially proxy currency and have as much value to casinos and players as cash. Used in cages, chip banks and vaults, RFID enhances tracking, provides management with improved security controls and much improved counting ability.
GPIC also offers a line of eReady gaming tables designed to accommodate the ventilation and cooling needs of today's electronic equipment as well as eliminate signal interference from RFID transmitters. The company is clearly doing things right, with the stock experiencing an increase of nearly 30% over the last 12 months.
GAMING OF A DIFFERENT TYPE
Investors looking to add more variety to their gaming portfolios might find the longtime pastime of bingo and the Japanese leisure activity of pachinko unique and appealing alternatives to more commonplace casino operations.
Littlefield Corporation, the United States' largest owner of charitable bingo halls, offers a unique spin on the game, helping it shed its image as a quaint distraction for retirees and turn it into a more youthful, contemporary and socially conscious entertainment. The company leases 38 bingo halls in Alabama, Florida, South Carolina and Texas to charitable organizations, who in turn pay a fee for each session of bingo. LTFD is responsible for upkeep, maintenance and facilitation of the physical locations.
Over the past 10 years, LTFD has hosted 138 charities ranging from the American Red Cross to volunteer fire departments to senior citizens', veterans' and children's organizations, altogether raising more than $34 million in gaming revenue. Currently trading well below its target price of $0.60, the stock has great ground floor potential.
Investors looking farther afield may want to consider Kinbasha Gaming International, Inc., the only Japanese gaming security currently traded publicly in the United States. KNBA operates 21 gaming parlors across the country, featuring Japan's two most popular forms of machine play: pachinko, which is played on a device that resembles a vertical pinball machine, and pachislo, which more closely resembles a western-style slot machine.
It may come as a surprise to American investors to learn that Japan is actually the world's largest market for slot machines, with 1.4 million units in operation, compared to just 853,000 in the United States. Kinbasha intends to capitalize on this broad national interest, expanding existing operations into the Tokyo metropolitan market through new stores and accretive acquisitions. Successful implementation of this strategy could potentially generate a double-digit return, raising its valuation to $2.50 per share in the next twelve months, according to Murphy Analytics.
Also attractive to investors is the fact that due to the compact nature of the parlors and the small footprint of pachinko machines, successful operators can monetize nearly every square foot of space. And since the gaming parlors are open 365 days a year, the cash flow from the business is relatively stable and consistent compared to Western counterparts.
For an overview of the pachinko market and Kinbasha's position within it, investors can view the company's latest investor presentation at http://www.trilogy-capital.com/autoir/knba_autoir.html and sign up for free email alerts here http://www.emerginggrowthcorp.com/emailassets/knba/knba_landing.php.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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