INLOT.AT - Intralot

[xtreeq]

Thanks for the idea Packer,

 

Started reading the 2012 annual and on p.17 it says

Recently, INTRALOT USA launched in the US market its new internet product - "DeepStack Casino™", which offers the possibility in the US players to participate in casino style games by receiving costfree chip bonuses. This new website offers interactive and social gaming content and expands the Company‘s portfolio beyond the traditional lottery products for which the Company is well known in the US. Legislation permitting, INTRALOT USA will also offer the platform as a B2B product to clients who want to introduce a real-money site within their regulated US jurisdictions, such as the lotteries.

 

The relevant press release http://www.intralot.com/content/2697/intralot-usa-launches-freeplay-deepstack-casino

Commenting on the occasion, Mr. Tom Little, President & CEO of INTRALOT USA, stated: “We are delighted to present to the US market our new, freeplay website DeepStack Casino™ that we have developed with a focus on the expectations and the actual habits of real-money players. We are confident that our new gaming offering will be embraced by players in the US jurisdictions.”

 

This is the website: https://www.deepstackcasino.net/

 

I would be embarrassed to show this site to a potential client.

Homepage is blank.

This page is just weird: https://www.deepstackcasino.net/mttwinners.asp#.UsAkaPQW3T8

It says “Top 20 MTT Winners” but it shows 21 winners. My guess is that most of the users are fake but I don’t have a way to verify this.

 

This is the facebook page https://www.facebook.com/pages/DeepStack-Casino/331492023553862

Only 65 likes.

Zero activity.

 

[Packer16]

I think a good part or most of the minority interest income comes from "mark-to-market" gains associated with the minority interest when less than 100% of the entity is purchased.  So if Intralot buys 80% of a company for $100 million, then the minority interest is put on the balance sheet at $20 million and "mark-to-market" gain is flowed through the income statement.  This would explain the lumpy MI income over time.  If you look at the % ownership from the AR the largest unit with a MI is Intralot USA (with a 90% ownership).  This equates to about $3 m of EBITDA.  If you can provide more insight that would be great.

 

Packer

[finetrader]

2007 - Net profit 164M, of which 52M is attributable to minority interest.

2008 - Net profit 104M, of which 54M is attributable to minority interest.

2009 - Net profit 77M, of which 27M is attributable to minority interest.

2010 - Net profit 54M, of which 18M is attributable to minority interest.

2011 - Net profit 35M, of which 17M is attributable to minority interest.

2012 - Net profit 33M, of which 26M is attributable to minority interest.

2013 9M - Net profit 19M, of which 19M is attributable to minority interest.

 

Man, talk about growth!

[yadayada]

https://www.intralot.it/poker

this also is kinda weird. DOnt they provide software? Here they are essentially running the ongame software. A skin for a dying pokersite with horrible software basicly.  It also said they entered some kind of agreement with partygaming. I would like to see some of their  websites that are doing well.

 

It seems the machines part of the business, and the lotteries provide the big money here. But 40% of ebitda is not under contract.

 

Another thing that i dont get is their receivables. Its been building up to around 170 million euros in the last 4 years if i look at the cash flow statement. and 260 million if you count in 2008. Yet i dont see it increase on the balance sheet? total receivables went from 320 million to 300 million. What is going on here? I mean im not yet v experienced in reading financial statements so i might just be overlooking something. But if it goes up a net 260 million, shouldnt receivables on the balance sheet be increased by 260 million?

[racemize]

I'm still reading on this one; however, it doesn't seem particularly easy to trade this.  It looks like I'd need to pay a fair amount of Euros/month in IB to see the data, and Google/Fidelity data doesn't seem to go back very far.  I guess there's the ADS, but it seems fairly illiquid.  Any advice out there?

[racemize]

Packer, what leads you to think maintenance cap-ex is 25m?

[Packer16]

In terms of EBITDA adjustments, using the MI is comparing (value (sum of residual from purchases) - MI value) to a cash flows items (EBITDA).  In most of the debt/equity analyst reports I have seen there is no adjustment so I am assuming that it is non-material (on the order of $3m previously estimated).  I have an email into IR about this question.  The $25 million cap-ex is form an debt analysts report and LT cap-ex analysts projections of $35m. 

 

I have had to purchase this one on the Greek exchange.

 

 

Packer 

[yadayada]

ok so just to double check with you guys, there is a 190 million euro hole in the balance sheet of receivables not adding up between 2005 and now. I might have missed something here. But receivables increased from 111 to 304 now. So a 193 million euro difference. But when I add up the receivables in the cash flow statement i get a figure of 385 million. So receivables should be about 190 million more. Not trying to rain on your parade packer, but this seems kinda weird.  But maybe im missing something.

[Packer16]

For the 2012 and 2011 years if you add the ST and LT AR numbers together you get to within Euro1m of the change on the CF statement (for the consolidated company).  There are probably some of the items buried in the other asset accounts that we do not have visibility into.  They have a reputable accountant (Crowe Horawath) so I feel the comfortable that the numbers will tie.  It is just hard to tie them together without the Ledger details which are not in the consolidated financial statements. (Note: this is not uncommon with consolidated financial statement of entities with a lot of units like Intralot).

 

Packer

[racemize]

In terms of EBITDA adjustments, using the MI is comparing (value (sum of residual from purchases) - MI value) to a cash flows items (EBITDA).  In most of the debt/equity analyst reports I have seen there is no adjustment so I am assuming that it is non-material (on the order of $3m previously estimated).  I have an email into IR about this question.  The $25 million cap-ex is form an debt analysts report and LT cap-ex analysts projections of $35m. 

 

I have had to purchase this one on the Greek exchange.

 

 

Packer

 

I'm sorry, I'm being a little dense here, I didn't quite follow you above--how are you accounting for the MI?  Is it typical to just add the MI to the EV (so market cap + debt + MI)?  Is that what you are doing for the EBITDA multiples?

 

Thanks!

 

Edit:

Also, I guess there is two sets of MI's, the MI they own of other entities and the MI they do not own but are reporting in the consolidated numbers.  Which one are you referring to?

[Packer16]

I am referring to the equity/liability MI's not the asset MI's. You should treat the MI's as a subtraction before equity to shareholders.  If you add the latest MI number of Euro75 million as debt you get an EV of Euro779 or an EV/EBITDA value of 4.0x.  At 9.0x EBITDA, the implied upside is 338%.  I think treating it as debt is easiest way to do it without the details of the MI accounting.

 

Packer 

[yadayada]

For the 2012 and 2011 years if you add the ST and LT AR numbers together you get to within Euro1m of the change on the CF statement (for the consolidated company).  There are probably some of the items buried in the other asset accounts that we do not have visibility into.  They have a reputable accountant (Crowe Horawath) so I feel the comfortable that the numbers will tie.  It is just hard to tie them together without the Ledger details which are not in the consolidated financial statements. (Note: this is not uncommon with consolidated financial statement of entities with a lot of units like Intralot).

 

Packer

So there are receivables of companies they dont fully own that are not on the balance sheet?  It adds up neatly most years, but from 2008-09 there is suddenly a 145 million euro gap. Is that some off balance sheet company? I counted both current and non current when I say receivables.

 

THis is counting in related parties. Suddenly about 50 million euros in receivables was wiped away. Related parties:

"These related parties consist of subsidiaries, associates or other related companies being under

common control and/or administration with INTRALOT."

 

If lets say they own 60% of some company, shouldnt they put 60% of the receivables number on the cash flow statement owed instead of 100%? Because it all has to balance out on the balance sheet?

 

both LT and ST receivables went down 73 million total on the balance sheet in 2009, but it increased 74 million according to the cash flow statement. I cant really find what exactly caused this difference on the balance sheet. Especially when it says that about 50 million out of 52m in receivables owed in receivables from related parties was suposed to be paid to intralot that year. Yet that doesnt show up on the cash flow statement. If 50 million was paid, and that doesnt show on the cash flow statement's receivables, it should show somewhere else? I cant see it written off on the income statement either.

[Packer16]

The rules for consolidation are not proportionate so you can get some strange results when a sub either is deconsolidated or becomes consolidated in a year due reaching an ownership threshold.

 

Packer

[finetrader]

I feel like this investment thesis lies in the belief that capital expenditure and WC expenses will be lower in the next few years, so that FCF will be higher.

 

We have to believe management here because if we look at the past 10 years FCF has been negative overall.

 

See attachment.

 

What make you think the future will be different than the past?

Intralot_profitability_history.xls

[yadayada]

The rules for consolidation are not proportionate so you can get some strange results when a sub either is deconsolidated or becomes consolidated in a year due reaching an ownership threshold.

 

Packer

but where is that ~150 million then? Intralot is suposed to get it, but it simply dissapeared off the balance sheet in 2009. Shouldnt it show up somewhere at least? Shouldnt the company get that in dividends (cant see any significant numbers there between 2009 and now)? They report it as income, but it never  shows up in actual cash? And its also not written down.

 

How can you trust this wont happen again, and all those receivables, that are built up,  wont dissapear again? 4 years seems an awefull long time for not getting anything from those receivables, you can probably write some of them down at least?

 

if you take just the 150, and given that they generated 330 million in cash before investing activities since 2008, seems like an awefull lot of money that is suddenly not being accounted for and not showing up anywhere over a 4 year period. Also kind of suspicious this happened right after the crisis in 08 imo.

[Packer16]

2009 was the first year Intralot reported under IFRS, so you would expect some one-time changes you wouldn't see in other years as they transitioned to IFRS.  As to future declines in cap-ex, I will believe they will happen.  Since 2008 revenue has increased by 12% per annum and Intralot had to expend cap-ex to achieve that growth rate (install machines).  So either the cap-ex will stay high and the 12%+ growth will continue or the growth will slow down to normalized growth and cap-ex will follow.

 

Packer

[racemize]

2009 was the first year Intralot reported under IFRS, so you would expect some one-time changes you wouldn't see in other years as they transitioned to IFRS.  As to future declines in cap-ex, I will believe they will happen.  Since 2008 revenue has increased by 12% per annum and Intralot had to expend cap-ex to achieve that growth rate (install machines).  So either the cap-ex will stay high and the 12%+ growth will continue or the growth will slow down to normalized growth and cap-ex will follow.

 

Packer

 

The presentation indicates that 2012 forward is "harvest mode", so I would expect the FCF to increase/cap-ex to decrease.

[original mungerville]

Yadayada,

 

"If lets say they own 60% of some company, shouldnt they put 60% of the receivables number on the cash flow statement owed instead of 100%? Because it all has to balance out on the balance sheet?"

 

No, the way it usually works (under US GAAP) is if it is consolidated because they own 60% of it, then you put 100% of the receivables on the balance sheet and in the cash flow statement. Under IFRS, however, you can get pro-rata consolidation in certain cases. So it comes down to how it is consolidated. If a subsidiary was pro-rata consolidated, however, you would not get a minority interest on the balance sheet for the subsidiary.

 

So I think if you guys are dealing with a minority interest from that subsidiary, then it is fully consolidated which means 100% of the receivables should be on-balance sheet and on the cash flow statement (even if they only own 60%).

 

This is also why adding minority interest to the debt (as Packer has suggested) is the easiest thing to do (and it makes sense) when calculating EV/EBITDA (ie he is taking in all the cash flows and income on a fully consolidated basis, so he needs to account for the MI not owned by adding that to the EV, similar to the treatment for debt). Now, its not the only way to do it, but surely its the easiest and it does make sense. In certain cases, tweaking this approach may be warranted, however.

 

I hope this helps.

[krazeenyc]

If Packer is right and maintenance cap ex is $25 million this is a homerun.

[Packer16]

Another data point for steady state cap-ex is the terminal cap-ex for SGMS (an Intralot competitor) made by Value Line.  This amount is about 2% of sales.  Which based upon Intralot 2012 sales is about Euro 27.5 million.

 

Packer 

[leftcoast]

I have had to purchase this one on the Greek exchange.

 

Do you use Fidelity? That's the only broker I can find in North America that supports trading on the Athens Stock Exchange. From what I can tell, even Interactive Brokers does not offer access to the Greek exchange.

[Packer16]

Yes I did.  I also used a rolling limit order which gave the Greek broker flexibility in the fill.  I am not sure it did much good as the orders were filled at my limit.

 

Packer

[one-foot-hurdles]

I have had to purchase this one on the Greek exchange.

 

Do you use Fidelity? That's the only broker I can find in North America that supports trading on the Athens Stock Exchange. From what I can tell, even Interactive Brokers does not offer access to the Greek exchange.

 

I've purchased this over IB

[argonaut]

Hi Packer,

 

Thank you very much for your analysis insights! I am enjoying learning.

 

As far as execution. Is a rolling limit order the same as a trailing stop limit order (Fidelity)? In effect you agree to buy x shares if the stock drops x% with a limit of a certain price that slides down as well? I've never used one to purchase stock I am a little fuzzy on how these work :)

 

And do you place each one separately e.g commit to purchase say x shares at each move up to a Max of x share total or they fill as much as they can once it is triggered?

[alertmeipp]

I have had to purchase this one on the Greek exchange.

 

Do you use Fidelity? That's the only broker I can find in North America that supports trading on the Athens Stock Exchange. From what I can tell, even Interactive Brokers does not offer access to the Greek exchange.

 

I've purchased this over IB

 

How? What's the symbol?