GPIC - Gaming Partners Intl Corp

[Cunninghamew]

This is a stock I have temporarily decided to pass on, but it caught my eye as interesting.  My fear / why I decided to pass is it just seemed like boring dead money and had one potential risk on the horizon. That said, the stock was cheap enough that I would try to gather other opinons.

 

Here is an abbreviated write-up

 

GPIC provides products to the casino industry (RFID chips, dice, cards, card tables, etc). The interesting side of their biz is casino chips. I think they have decent market share and chips are approx 67% of their sales.

 

Why are their chips special? They have an exclusive patent to put low and high frequency RFID chips in their casino chips. This make their chips special, as it allows the cascino to easily track/count chips and protect agianst counterfeit currency. Other companies appear to use laser ettching etc, but dont have the same value prop. as theirs. Once their chips are in the casino it is unlikely the cascino will use a different outfit for future chips.  I frankly don't care much about their other biz lines. I think they only reason they even have them is they have an opportunity to sell additional product when speaking to a new cascion about their chips.

 

Long-story short - sounds like the have an edge when it comes to casino chips.

 

The downside to chips:

 

1. Chips have long-life spans and dont need to be replaced very often (revenues are very lumpy)

2. They have multiple patents, but it appears the one pertaining to RFID casino chips actually belongs to IGT. They have exclusivity on that patent till sometime in 2015 <-- this was the biggest risk to me and why I am mild on the idea

 

Valuation:

 

Approx $60mm market-cap + $19.3mm of marketable securities and cash on the BS... no debt    --> EV $44mm

 

Like I said, results are lumpy, but free cash flow has ranged from a low of $4mm (2011) to a high of $7.7mm (2010) over the last 5 years. Last year they produced $5.6mm of free cash flow, which is approx a 13% yield on the enterprise.

 

This seemed pretty cheap for said company (not a homerun, but cheap and good things happen to cheap companies). 

 

 

 

 

 

 

 

[17thstcapital]

I've spent time on this co before.  It's a nice little business but I passed for a few reasons.  One, there's absolutely no growth and I couldn't figure out how they'll ever generate top line growth. Related to that, I couldn't get comfortable with their competitive position - I know they have patents and all but doesn't seem farfetched that something else could displace them in the future.  Finally, this company is horrificly underlevered and I didn't get the sense that this would change anytime soon.  This seems like a great buyout or a debt for equity recap candidate.  I know there's an activist here who I respect a lot and so maybe they can unlock some of the value here.

[augustabound]

Adam at Value Uncovered (now a member of the Yachtman team) posted on this a couple of years ago.

http://www.valueuncovered.com/gaming-partners-gpic-ob-a-value-bet-on-casino-chips

[krazeenyc]

Thanks. I'll take a look at this. FWIW Paulson is like the Cadillac of chips it has been around for a long time. Bud Jones is well known as well. Clearly casinos need chips (especially in the higher denominations) to be secure. Chips that are $25k and above often even have tracking abilities. $5 and under there are very little security features to speak of.  These chips are used at Casinos b/c they're Paulson and to a lesser extent b/c they're Bud Jones chips. You can embed anyone's tech into them.