|
What Goes to Vegas Can End Up in Your Pocket, Too
By
Michael Brush
July 21, 2005
If you run a casino, you want to have the fewest number of obstacles between
gamblers and their bank accounts.
Enter Cash Systems (CKN).
Based in Burnsville, MN, Cash Systems is the second largest of four
companies that put credit and debit card cash advance systems, automated
teller machines, and check cashing systems right on the floor inside casinos
around the country.
Besides maintaining the flow of greenbacks to the gaming floor, Cash Systems
helps casinos in other ways. First, by checking up on patrons through links
to Certegy – a check guarantee system -- Cash Systems keeps credit risks
low. Cash Systems also provides rapid readouts to casinos on customer
withdrawals, so casinos know who to comp.
And it’s systems work faster than those of many competitors – typically in
less than sixty seconds. That leaves less time for gamblers to change their
minds about heading back to the tables. Cash Systems makes money by
splitting fees and surcharges with casinos that use its services and
equipment.
Making a play for the smaller accounts
Insiders have bought about a half a million dollars worth of stock in recent
months, suggesting there is decent growth ahead. Where might it come from?
First, Cash Systems has a good reputation for decent customer service. Since
the company started several years ago, for example, it has a 95% renewal
rate among customers.
This matters, because larger competitors that serve the biggest casinos
sometimes give their smaller customers short shrift. Cash Systems wants to
win them over.
“We provide greater attention to service for those who are not accustomed to
getting the best treatment from vendors to major gaming companies,” says
chief executive Michael Rumbolz. ”We are picking up smaller accounts that
feel neglected by the big player in the space.”
Cash Systems, for example, counts the smaller, local operators in Las Vegas
among its customers, as well as many Indian-run casinos. Cash Systems works
with about 150 casinos, and there are about 880 overall. These numbers give
you some idea of the potential for growth.
Product innovation
The other avenue for growth should come from innovation. Cash Systems, for
example, recently rolled out a “Stay-N-Play” wireless hand-held device that
casino workers can bring right to patrons so they don’t even have to leave
the poker table or slot machine to get more cash.
The company has deployed these to five casinos in a kind of test phase – to
let casinos learn how best to integrate the device with their own internal
security systems. Stay-N-Play should ramp up in a more serious way starting
in the fourth quarter.
Around the same time, other new products should be launched. Rumbolz doesn’t
offer any details. But its easy to imagine that cash access systems might
get built right into slot machines or other parts of a casino’s
infrastructure.
Rumbolz will say that the next round of cash services products will likely
be so woven into the core operations of casinos, that companies like Cash
Systems will need special gaming licenses to offer them. If so that will
provide a barrier to entry for the business.
A touch of gray
Cash Systems already has a lot of the licenses it needs. But recent
management changes bring extensive gaming sector experience to the company.
That’ll help with licensing – just as it provides a rich network of contacts
the company can use to grow.
Rumbolz, who took over in January, was the chief executive at Anchor Gaming,
a slot machine company, and the chairman of the Nevada Gaming Control Board.
The company also recently brought in a marketing director with experience at
International Game Technology (IGT).
Several board members also have broad experience in the casino sector.
Valuation
At $9.10, Cash Systems trades at 29 times 2006 estimates of 31 cents per
share. The company has a medium-term projected earnings growth rate of 42%.
So it has a price earnings to growth (PEG) ratio of .7. Generally, companies
with a PEG ratio of less than one are considered cheap. Rumbolz, who came
out of a comfortable retirement to head this company, bought $420,000 worth
of stock at $8.40 in early July. Another insider bought $66,000 worth at
lower levels in May.
The bottom line: Though many of the catalysts, like the new products,
seem far away, I think the stock is a buy right here – given the valuation
and the strength of the insider buy signal. I bought above $9.20 in early
July when news of the insider purchases first came out, but you should be
able to purchase shares closer to $9 where the stock appears to be basing
now.
Disclaimer
At the time of publication, Michael Brush held
shares of Cash Systems.
Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About
Insiders Corner:
http://www.investorideas.com/insiderscorner/. InvestorIdeas.com
Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article.
|
|
