Scientific Games Corporation (SGMS) announced that it has been awarded a five-year contract in competitive procurement process by the Ontario Lottery and Gaming Corporation to supply instant lottery tickets and printing services.
Although this is a five-year contract, it includes extension options for up to three years. Scientific Games will be the exclusive supplier of instant ticket printing services to Ontario Lottery, thereby helping the company to expand in Canada.
Based in New York City, Scientific Games is a global IT systems and services company that provides instant ticket and online lottery products, systems and services to lottery authorities and gaming markets worldwide.
Scientific Games continues to grow through international development activities with the new contract further validating its expansion initiative. We believe that Scientific Games benefits from its strong and growing presence in the worldwide instant ticket and online lottery markets, and has made significant in-roads into international markets that have traditionally been dominated by GTECH Holdings Corporation.
Management pointed out that it invested in a new printing press for its Montreal facility in 2009, to optimize service and support its Canadian customers. This has helped the company to more than doubled its capacity in Canada as well as enhance the security and quality of its instant games.
Despite continuous efforts, Scientific Games’ profit of 12 cents per share for the recently completed third quarter of 2010 was down 25.0% from 16 cents reported in the prior-year quarter. The decline was primarily driven by weak revenue growth in the quarter.
Revenues declined 7.5% year over year in the quarter adversely affected by foreign currency fluctuations and lower lottery sales. Lottery Systems Group revenues plunged 19.4% year over year to $52.8 million, reflecting lower hardware and software sales and online contract terminations.
Recently, Scientific Games lost contracts in New Hampshire, Vermont and South Dakota. Moreover, its US lottery systems customers’ retail sales decreased 7.8% in the third quarter.
Despite weak third quarter results, we maintain an Outperform rating on a long-term basis (6–12 months). We believe that with the completion of the sale of the racing business and large contract re-pricings, Scientific Games will focus on developing its core business.
We expect the company’s product offerings, recurring revenue business model and strong growth from the Internet based business to augur well over the long term.
Given significant competition from International Game Technology (IGT) and lack of movement in the Zacks Consensus Estimate in the last 30 days, Scientific Games has a Zacks #3 Rank, which implies Hold rating on a short-term basis.
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