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Gaming brain designer is closing on major outsourcing bonanza
Thursday 20 Oct 2016 Author: Steven Frazer

The next year or so should transform gaming platform designer Quixant (QXT:AIM). Enjoying rapid growth, a technological edge and reasonable pricing power, we firmly believe this is a must-have stock for your ISA or SIPP.

The Cambridge-based company designs the logic boxes that control pay-to-play digital gaming machines – one arm bandits, quizzes, casino; it is the brains behind the games.


It’s a winner

Outsourced logic boxes are fast becoming the accepted norm across the vast and highly competitive gaming machine industry. Quixant’s all-in-one boxed solution offers a low-cost, high-quality and innovative product that increasingly appeals to manufacturers keen to concentrate their own research and development (R&D) efforts on game design and development, the core differentiator in attracting players from one terminal to another.

This is a niche but large market. Estimates suggest around 8m gaming machines installed worldwide but very few gaming platform suppliers. Most production is in-house and there are clear drivers to outsource, such as the increasing cost of development and an ever-changing legislative environment.

There are five major (or tier-1 as they are called) gaming machine designers in the world; a couple in the US, one in Australia, two more in central Europe. All operate globally and Quixant has long-standing relationships with them all. This small group owns about 90% of the gaming machines worldwide.

Rising through the tiers

So far Quixant’s main customers have been smaller tier-2 operators, such as Ainsworth Game Technology based in Australia, with whom Quixant signed a new multi-year deal in May. Earlier still Ainsworth sold a majority stake in its business to Novomatic of Austria, one of the tier-1 players, effectively giving Quixant an even bigger foot in the door to volume orders.

The potential difference could be massive. According to Quixant management, a typical tier-2 contract would be for 10,000 logic boxes – in a good year, a tier-1 order would be 10 times that amount.

Sealing a meaningful tier-1 agreement has taken longer than hoped, but for good reasons. Over the last 18 months or more there have been quite a few takeovers in this space, with bigger players hoovering up the small.

Analysts believe this corporate activity may have put outsourcing on hold temporarily, a dynamic that is likely to change through 2017 as customers extract value from their own operations. In the meantime, Quixant has worked at cementing its place at the negotiating table with proof-of-concept-type deals. (SF)


Quixant  (QXT:AIM) 285p

Stop loss: 228p

Market value: £185.8m

Prospective PE Dec 2017: 19.7

Prospective PE Dec 2018: 13.2

Dividend yield: 1.4%

Analyst price target: 250p


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