WMS just like Avis!

Aug 20, 2002 9:38 AM

You know it’s been a tough year when your company posts earnings of 2 cents per share . . . and beats the Wall Street consensus estimate.

WMS Industries is having that kind of run these days. But insiders say the slot machine maker is "rising from the ashes."

"They’re not a shell corporation. They’re debt-free. They’ve got $100 million in the bank. They own both their facilities. And they can afford to hire the best engineers,’’ a well-placed industry source tells GamingToday.

In the battle to be No. 2 behind slot giant IGT, WMS has its work cut out for it. Bally/Alliance, Aristocrat and Atronic, to name just three, are all strong competitors.

"I don’t think there’s room enough for everybody," says Daniel Davila, senior entertainment and leisure analyst for Southcoast Capital. "As a practical matter, companies like IGT only get stronger and I think the weakest companies will have trouble surviving."

Dogged by a series of damaging computer glitches, WMS has had its share of trouble. The widely reported technical hiccups halted regulatory approval in Mississippi for 10 months, and cost the company dearly in both dollars and public image.

The balance sheet took a hit last quarter, when the Illinois-based firm reported earnings of $700,000, compared with $3.2 million a year ago. Revenue also plummeted from $65.8 million to $43.2 million and cash flow tumbled 73 percent to $6.2 million.

But an innovative line of new products ought to buoy the bottom line, reports Jason Ader of Bear Stearns. "WMS has a number of developments in the pipeline that could provide an opportunity for the company to regain market share,’’ he states. Among them:

”¡ The 3RV gaming platform, a simulated three-reel video slot that has been winning 1.3 times the house average during field tests. The first machines are rolling out this month in California, Connecticut and Minnesota.

”¡ A new video poker device, due for delivery next summer.

”¡ A propriety operating system produced in conjunction with Sierra Design Group. Once available, operators with older systems’ games can purchase the upgraded board and retrofit their machines, or purchase new games featuring both the new software and hardware design.

WMS continues to benefit from strong participation games backlog, Ader says. And several new games are scheduled to debut at the Global Gaming Expo next month in Las Vegas.

For now, Bear Stearns has slapped a "hold" rating on WMS stock while CIBC World Markets brands it "attractive."

"We are encouraged by the indications of a turnaround, but remain cautious pending indications of acceptance of the company’s new products,’’ CIBC analyst William Schmitt says.