| Small & micro cap project / Activism insight

Accel Entertainment (NYSE: ACEL): Signs of moat

by | Apr 9, 2020

Basics

M. Cap: $649 million

The company operates within the US distributed gaming industry, which consists of the installation and service of slot machines at non-casino licensed establishments. The company’s business consists of the installation, maintenance and operation of video gaming terminals, redemption devices that disburse winnings and contain automated teller machine functionality, and other amusement devices in authorized non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores, truck stops and grocery stores

Impact of coronavirus pandemic

On March 16, 2020, the Illinois Gaming Board decided to shut down all video gaming terminals (VGTs) across the state, which is extended until April 30, 2020. Since the company generates revenue predominantly from the state of Illinois, the company’s revenue is expected to take a massive hit.

What we like / Signs of moat

+Market share: Accel enjoys a 31% share in the video gaming terminals in Illinois.

+ Long-term contracts with a high renewal rates: Accel’s exclusive contracts with its licensed establishment partners have remaining terms averaging approximately 7.4 years out of the maximum permissible contract term of 8 years. Also, Accel’s voluntary contract renewal rate for the three-year period ended December 31, 2018, was over 99%.

+ Proven track record in integrating acquired licensed establishment partners: The hold-per-day of the licensed establishment partners increased by approximately 22% on a weighted-average basis, compared with the pre-acquisition hold-per-day, as measured by the twelve months prior to acquisition, compared with the twelve months, post-acquisition, which ended on September 30, 2019. 

+ Significant growth opportunities on hold:

  • In January 2020, the IllinoisGaming Board (“IGB”) gave the approval to increase the maximum number of VGTs that may be operated at a given licensed establishment from five to six. The company expects to install 1,000 additional VGTs by the end of the 3rd
  • Moreover, new legislation has increased the maximum allowable bet from $2 to $4, and increased the maximum payout from $500 to $1,199. A software update is required to roll-out the changes.

+ Notable shareholders: Simcoe Capital Management – 5% of portfolio; Crescent Park Management – 5.5% of portfolio

 

 

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