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Full Time Micro Cap Investor. Founder of MicroCapClub.com The MicroCapClub (mc2) is an exclusive micro cap forum focused on micro cap companies (sub $300m market cap). The MicroCapClub was created and founded by Ian Cassel as a way to share ideas and to learn from other seasoned like-minded... More
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  • Electronic Game Card, Inc (EGMI.OB): A Hidden Gem 0 comments
    May 17, 2009 11:47 AM | about stocks: EGMIQ

     

    Electronic Game Card, Inc (EGMI.OB), is growing EPS 40% yr/yr, has $10 million in Cash, no debt, and is trading at 9x TTM and 6x projected 09’ EPS.  The disconnect between the current share price and where the stock “should trade” based on any type of growth multiple is where the value lies not to mention future contract wins which will up EPS guidance. 

    Highlights:

    ·    Undervalued:  EGMI currently trades at $0.90 which is 9x TTM (0.10) and 6x 09’ EPS Guidance (0.14)

    ·    Growth:  Company has projected 70% Revenue growth ($17m) and 40% EPS growth (0.14) in 2009

    ·    Insiders:  Lord Steinberg, Chairman of EGMI and resident Billionaire, has made large open market purchases for stock as recently as late March (bought 2 million shares at 55c). 

    ·    Share Buy Back: Company has authorized a 5% share buyback this month. 

    ·    Cash:  The company generated a record $2 million in cash in Q1 09’, thus adding to its attractive cash cushion (~$10 Million). 

    ·    Management Additions:  Kevin Donovan, new CEO came on board earlier this year and has an impressive bio.  I have spoken to him via phone and he is a deal maker and has many irons in the fire. 

    ·    5 Year Goal: Management has a five year goal to hit $110 million in revenues which is very conservative.  I would not be surprised to see them hit this in 3-4 years.   The company at that scale with margins comparable to the most recently announced Q1 would produce over 60 million in pre-tax income.   

    Electronic Game Card, Inc., develops, produces and markets innovative games to the promotional industry worldwide, toys and games, casinos and lottery. The Company's lead product is the EGC Electronic GameCard(NYSE:TM), a unique credit card-sized pocket game combining patent and patent-pending proprietary technology of interactive capability with "instant win" excitement. The "EGC Electronic GameCard(TM)" can be programmed to suit a variety of gaming and promotion applications.

    The potential gaming market for this product is huge.  Instead of having scratch and win cards you can buy a dynamic game card which lets you play lottery, bingo, black jack, poker, slots, etc.  Currently, the company is receiving $125,000/quarter from Scientific Games who has an exclusive on the US lottery Market until early 2010.  In Q1 2009, the company added $250,000 per quarter guaranteed license minimum from Sovereign Game Card who is EGMI’s Native American casino focused distributor.   The company is also bidding on casino projects in Europe, Las Vegas, Australian and Asian markets. 

    Lord Steinberg, EGMI’s Executive Chairman, sold Stanley Leisure plc (roughly $2 Billion) in 2006 which controlled 1,500 betting shops and parlors throughout East and Western Europe.  Needless to say Lord Steinberg will be bringing lots of business EGMI’s way via the gaming market. 

    Promotions is the second key business segment for the company and its largest revenue contributor to date.  Promotional cards focus on redemption of product launch programs, self-liquidating promotions, increasing traffic to retailers/restaurants, as well as loyalty rewards motivators for areas such as player’s clubs and slots programs.  EGMI’s new iQuiz card is a perfect fit for the sports world which would be marketed toward there large fan bases.   The company hinted several times that there is a lot of enthusiasm inside the sports world for this product so I expect to see at least one announcement in this regard sometime this year.   Needless to say a large sports deal = game changer for the company. 

    Another distribution vertical the company is entering is Educational GameCards.  The company licensed “Thomas & Friends” and has developed a game card that will launch in the UK before Christmas 2009.  This card will be a low cost entrant and is expected to do well especially in these uncertain economic times.  The company also has the option to purchase the rights for the US market place.    The company is also talking to other gold-standard brands in doing the same thing.  I believe the potential for this is limitless.

    I had some game cards delivered to me a few weeks ago and they are as small and as dynamic looking as the company states.   They also sent me numerous case studies showing the incredible follow through when using these cards in the promotions and gaming areas.   The “pitch” is quite simple.  EGMI can drive traffic and sales to any company or gaming operator deploying these unique, low cost, and highly memorable game cards.  

    In the most recent quarterly conference call the company was not shy about their current initiatives to increase distributorships across all three verticals.   CC highlights are as follows:

    1. Company will announce one and possibly two new regional distributors by June 30th
    2. Two major sports properties are evaluating the product
    3. In talks with several gold-standard educational companies
    4. Betting Shop opportunities nearing completion in Romania, Poland, etc
    5. Several Lottery orgs outside US evaluating the product

    Conclusion:  EGMI is one of the most interesting companies I’ve found and is significantly undervalued.  Companies are looking for a low cost highly effective way to promote products/services, and EGMI’s game cards are a way to do this in any economic back drop.  Management has stated that guidance of 0.14 EPS could be increased for 2009 based on potential contract/licensing wins in near/medium term.  With almost $0.25/share in cash and investments, you are only paying 6-7x trailing for a company growing EPS 40% yr/yr.   A snapshot view of the S&P reflects that if a company is growing in the current market, a 20x PE is in order.   At the rate EGMI is growing, probably a 30x+ is the correct valuation. 

    My 12 month target on EGMI shares is $2.80 based on a conservative 20x multiple to the companies 2009 EPS guidance of 0.14 EPS. 

    Disclosure:  Long EGMI

     

    Stocks: EGMIQ
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