yeah, we wrote up AGS back in the summer of 2022. it's been a good call so far, and in part because of deleveraging I think the story is still pretty good. looking quickly looks like net leverage went from 4.2x to 3.2x, and they're targeting sub-3x by year-end.
EVRI merging with IGT I think also means M&A remains a possibility - they turned down an offer at $10 last year, maybe not a *terrible* decision with the stock at $9, but in these consolidation waves at some point you need to make a move or you wind up being a tiny fish in a sea with 3-4 sharks. I can see Aristocrat being interested, maybe Inspired comes back, but I would hope they're trying to position themselves for a mid-teen per share offer.
to your second question, I'm probably a bit too positive on deleveraging on occasion, so yes, I definitely think that's possible. DLHC, which we wrote up and I still own, I think is a good example of that. they make a big acquisition which levers them up to 4x-plus, work it under 2x through growth and debt paydown, make another big acquisition, delever, rinse and repeat. Stock is up almost 500% over the past decade, and I think like 2500% since current CEO took over.
so if it works, it can work *really* well. as you know, of course, if the business stumbles, or you make one bad acquisition (it only takes one) you can get in a lot of trouble in a short amount of time.
I agree re acquisition potential; and they said on the Q4 call that they expected to pick up additional business as fallout from the EVRI/IGT merger. I've owned AGS for a some time and while it's nice to see leverage coming down, in my view it can't happen fast enough. (I can easily imagine AGS getting cut in half if a recession hits).
While I'm not familiar with DLHC (I vaguely recall that they suffer from massive customer concentration risk?), and while I share your affinity for these setups, it's worth noting that these stocks can go to zero if they are caught on the wrong side of the economic cycle.
definitely, as I wrote I can be a little too positive on some of these stories.
DLHC does have concentration risk in terms of fed govt departments, but a big part of their strategy has been to diversify within the government, and being a contractor obviously takes away macro risk (though it does introduce other risks). delev not the only reason the stock is a 20-bagger of course
Great article! Are you familiar with AGS? Do you think a "beautiful deleveraging" is possible?
yeah, we wrote up AGS back in the summer of 2022. it's been a good call so far, and in part because of deleveraging I think the story is still pretty good. looking quickly looks like net leverage went from 4.2x to 3.2x, and they're targeting sub-3x by year-end.
EVRI merging with IGT I think also means M&A remains a possibility - they turned down an offer at $10 last year, maybe not a *terrible* decision with the stock at $9, but in these consolidation waves at some point you need to make a move or you wind up being a tiny fish in a sea with 3-4 sharks. I can see Aristocrat being interested, maybe Inspired comes back, but I would hope they're trying to position themselves for a mid-teen per share offer.
to your second question, I'm probably a bit too positive on deleveraging on occasion, so yes, I definitely think that's possible. DLHC, which we wrote up and I still own, I think is a good example of that. they make a big acquisition which levers them up to 4x-plus, work it under 2x through growth and debt paydown, make another big acquisition, delever, rinse and repeat. Stock is up almost 500% over the past decade, and I think like 2500% since current CEO took over.
so if it works, it can work *really* well. as you know, of course, if the business stumbles, or you make one bad acquisition (it only takes one) you can get in a lot of trouble in a short amount of time.
I agree re acquisition potential; and they said on the Q4 call that they expected to pick up additional business as fallout from the EVRI/IGT merger. I've owned AGS for a some time and while it's nice to see leverage coming down, in my view it can't happen fast enough. (I can easily imagine AGS getting cut in half if a recession hits).
While I'm not familiar with DLHC (I vaguely recall that they suffer from massive customer concentration risk?), and while I share your affinity for these setups, it's worth noting that these stocks can go to zero if they are caught on the wrong side of the economic cycle.
definitely, as I wrote I can be a little too positive on some of these stories.
DLHC does have concentration risk in terms of fed govt departments, but a big part of their strategy has been to diversify within the government, and being a contractor obviously takes away macro risk (though it does introduce other risks). delev not the only reason the stock is a 20-bagger of course