Fiscal 2011: the good - gaming ops, the bad - timing.
BYI posted a sloppy FQ2 which we think was expected by the investment community. North American ship share remain around an estimated 14%, consistent with FQ1. Gaming operations was pretty much in-line. The unit growth in the installed base bodes well for future growth. As we pointed out in our preview, we were worried about the timing of software sales. Indeed, software sales came in $4m below our revenue projection. This segment remains BYI’s lumpiest and most difficult for analysts to model.
BYI lowered guidance to a range of $2.00-$2.15 from $2.05-2.30. We are not too concerned with the lower guidance as BYI was not a fiscal 2011 story. The primary culprits for the lower guidance was Italy, which is looking more like a revenue sharing model rather than straight sale and regulatory delays of around 1 quarter, and Canada system sales which were pushed out until fiscal 2012. Neither of these issues is too disconcerting. Revenue sharing is usually preferred as it provides a higher margin and smoother and longer-term revenue stream. Our fiscal 2011 estimate is now $2.11.
It’s no secret we like the long term outlook for the slot suppliers: huge growth off of trough replacement and significant number of new markets. What is particularly appealing about BYI’s position is:
- Ship share gainer – given the new technology platform and introduction of new games on that platform, we think BYI gains sequential share each quarter from its current and artificially low share of 14%. In the absence of a pick-up in replacement demand which would lift all suppliers, ship share may be a focus in stagnant domestic environment.
- Participation – BYI doesn’t seem to have the IGT or WMS issues in this segment. BYI should be a market share gainer here as well.
- Lower valuation/expectations – BYI appears to trade at a 15-20% discount to the peer group.