As a publicly-traded company, Illinois’ Accel Entertainment has a new status. It is now on the NASDAQ exchange with a bright future. In fact, the video gaming terminal operator is reporting good earnings.
Their recent report reveals $101.3 million in revenue for Q3 of 2019. However, some analysts find this below expectations. Union Gaming (UG) thought the company would bring in around $108.7 million for the quarter.
A lot has been happening in the company including the acquisition of the Grand River Jackpot (GRJ) in September. It now knows about seasonal market fluctuations as reflected in its financial.
According to UG analyst, John DeCree, excluding Grand River jackpot, we estimate ACEL’s legacy portfolio generated an average HPD of $127 in the quarter, up about 1% year on year.
Going forward, he expects HPD to improve two-fold as the company optimizes the GRJ portfolio and upgrades VGTs enterprise-wide to accept higher wagers (with higher jackpots) when the software is finally approved by regulators.
That growth will no doubt take some time. The company could see a slight drop before accelerating, and DeCree anticipates the fourth quarter to be a little soft.
He forecasts Accel’s Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) at around $22.6 million, $1.3 million lower than anticipated. Of course, he will change his tune pending regulatory action.
Not to be pessimistic for Q4, Accel has to take care of its fiduciary responsibilities. The company had $200 million in net debt at the end of Q3, (including $350 million in a credit facility). Hopefully, that level can be reduced by around $14 million by the new year.
But the possibility of strong growth is promising. DeCree says that Accel is still a “buy” at the price target of $13.
“We continue to see plenty of growth ahead for ACEL in Illinois through M&A and the expanded VGT legislation along with continued organic growth.”
Shares are trading at 7.0x UG’s 2021 Adjusted EBITDA estimate. The price target is a 9x multiple on its 2021 estimate. It is appropriate given the company’s elevated growth profile, healthy balance sheet, and above-average ROIC relative to other regional gaming companies.