Everest Poker Lagging European Peers, Analysts Say

1 May 2009
Analysts with Roth Capital Partners have trimmed forecasts for GigaMedia Ltd., the online gambling and gaming operator, as the company's poker operation continues to struggle in the highly competitive European market.

Todd Eilers, a broker with the California firm, projected in a note Friday that first-quarter income from Everest, the company's European real-money gambling arm, will fall 9.5 percent over the previous year.

He expects poker revenue will drop 22 percent during that period, but casino will rise 6.4 percent.

"According to PokerScout.com, Everest traffic continues to lack its peers (-8% q/q vs. flat industry) through the beginning of 2Q," Mr. Eilers said. "We believe poker weakness is the result of a strong US dollar, combined with increased competitive pressures from US facing operators."

Arthur M. Wang, the company's chief executive, announced on the company's fourth-quarter results in March that Everest could be put on the block.

Mr. Wang also said then that the company was considering merging its poker liquidity with that of another operator.

"It sounds like GigaMedia are very interested in outsourcing poker and are talking to multiple parties," a person with knowledge of the negotiations told IGamingNews Friday. "I think this would be highly accretive to the bottom line, but I worry that it might limit the company’s ability to enter the U.S. market if they are tied to another network provider."

In recent weeks, it was speculated that PartyGaming was in bid talks with the Taiwan operator, but both companies declined comment when contacted by IGamingNews.

Mr. Eilers estimated that assuming an Ebitda multiple of eight times across the 2009 fiscal year, Everest could fetch around $310 million.

Roth has reduced its 2009 price target to $8 from $9, and lowered earnings-per-share guidance by 14 cents. The company's shares, currently trading at $6, are estimated to achieve a price-to-earnings ratio of 12.8 times this year.

Mr. Eilers remains bullish on the stock given a number of near-term catalysts -- like Barney Frank's expected bill or a successful M&A transaction -- could drive the price up.

The company's Asia-facing business, meanwhile, is on pace to grow 30 percent this year, Mr. Eilers said.

Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.