Gaming Partners International Corp (GPIC)

Gaming Partners International Corp (GPIC)

Frank Voisin is a value investor and independent analyst whose site, Frankly Speaking, contains Frank’s investment theses as well as educational material to help investors avoid value traps. Subscribe to Frank’s feed here.

Gaming Partners International Corp (NASDAQ:GPIC) is a manufacturer of counterfeit-resistant casino chips enabled with RFID technology. GPIC sells these chips, among other gaming products, to casinos worldwide, with manufacturing in France, Mexico and the United States. Recognizing the growth prospects of gambling in Asia, GPIC will be opening a sales office in Macau in 2011.

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GPIC trades around $6.00, but has more than $2.50/share of cash, bringing its P/E ex-Cash to 5.84. Additionally, the company has zero bank debt, very low operating leases (it owns most of its facilities), low capex demands, an overfunded (with conservative assumptions) DB plan (for its French workers), and remained profitable throughout the recession. Earlier this year it was trading at a peak level 33% higher. Finally, the company enjoys a competitive advantage, with 70% of the world’s gaming chip market and a reasonably high switching cost (a casino would have to replace all of its chips).

GPIC is also the only pureplay manufacturer of RFID-enabled gambling chips. Its other competitors largely do not have RFID technology in their chips (GPIC has several patents as well as the exclusive license over a few patents). One competitor, Dolphin Products Pty, has RFID-enabled chips, but it is a wholly owned subsidiary of a larger, more leveraged gaming company, Shuffle Master, Inc (NASDAQ:SHFL) which is about to undertake a big step by becoming a casino operator, with plans for a large casino in Cambodia, near the Vietnam border. In other words, an investment in SHFL is hardly a pureplay investment in the resurgence of the gaming industry as the world economy continues to pick-up, and more of an investment in the success of a particular project largely removed from Dolphin Products’ operations. Thus, GPIC is the only pureplay casino products manufacturer (2/3 of its revenue is from chips) with RFID technology, and it is trading near a good range for purchase.

I should also point out that GPIC recently issued a special dividend of $0.1825 per share, which reduced cash by $1.5m (this is not reflected on the last 10-Q, so keep it in mind if you are looking into the company).

I have calculated GPIC’s EPV as a no-growth perpetuity around $6.50, so the price isn’t quite cheap enough for me (and it doesn’t trade below its NCAV, so it isn’t an asset play), but I’ll add it to my watchlist and wait for a good opportunity to buy.

Read more about GPIC as a value opportunity here and here.

Talk to Frank about GPIC.

Author Disclosure: No Position

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