Shares of PlayAGS (NYSE:AGS) plunged Tues after the gaming device manufacturing business announced the sales agreement of to a greater extent than 8.2 billion shares held past private equity strong Phoebus Global Management (NYSE:APO), prompting sell-side analysts to interrogative sentence the timing of the offering.
The gillyflower finished let down past 13.39% on intensity that was to a greater extent than 20 times the day-by-day average. Las Vegas-based PlayAGS isn’t straight selling any shares nor testament it take in proceeds from the offering. Apollo’s bet in the gaming troupe represents well-nigh 22% of the shares outstanding.
The shares beingness sold past Apollo are the utmost of the private equity giant’s post inward PlayAGS following similar transactions inwards 2018 and 2019.
J.P. Sir Henry Morgan and B. James Whitcomb Riley Securities are the underwriters for the offering.
Tough Timing for PlayAGS Stock
News of the deal sale arrives to a lesser extent than a calendar week after PlayAGS carry tumbled followers its third-quarter earnings report. The shares recovered nearly half the earnings-induced slide over the past times several days, but those gains were wiped today.
The proclamation of Phoebus Apollo liquidating its stakes inward the expansion slot simple machine shaper also arrives almost deuce months after takeover talks with Inspired Entertainment (NASDAQ:INSE) ended, which also sent PlayAGS inventory lower. There was conjecture that Apollo may have got loomed large inwards those discussions, but that was never publically revealed. Still, analysts say the timing of the divvy up cut-rate sale is questionable.
Specifically, the promulgation follows a Q3 earnings describe that piece seemingly correct down feather the middle, was met with a -21% diminution inwards the shares the followers day,” wrote Stifel psychoanalyst Jeffrey Stantial inwards a written report to clients. “AGS has partly recovered, though stock-still -11% T1W. We get yet to try of anything credible justifying the sell-off from a fundamental principle perspective, though the timing of the secondary sales event shortly thereafter could potentially pull out scrutiny.”
He did, however, billet Apollo’s cut-rate sale removes a “longstanding overhang” from PlayAGS stock, which often traded at rich discounts congeneric to peer due to the buck private equity firm’s situation inwards the shares. The psychoanalyst added Apollo’s cut-rate sale was potential to a greater extent “mechanical” than anything else as the financial companionship has been mired with PlayAGS for a decade and its remaining wager was small.
Stantial reiterated a “buy” rating and an $11 price target on PlayAGS.
PlayAGS Stock Still Cheap
In a observe to clients today, Philip Roth Washington psychoanalyst Black Prince Engel also questioned the timing of the Phoebus Apollo sale, noting the common soldier equity business firm may experience been concerned with PlayAGS’s efforts to de-lever its balance weather sheet as involvement rates rise. Much of the gaming company’s debt is variable rate, import it’s severely to cut those liabilities when borrowing costs climb.
Conversely, the analyst added that it is somewhat surprising Phoebus Apollo decided to constituent with its PlayAGS stake now, particularly if another suitor comes calling for the gaming company.
“AGS trades at an 17% fruit to our 2023E FCF, or 5.1x EBITDA. This is a wide-cut price reduction to provider peers trading at a 9-12% fruit and 6-8x EBITDA. Given this full discount, we feel Apollo’s cut-rate sale surprising, peculiarly given potency cost synergies if AGS is targeted past an acquirer,” concluded Engel. “Of all the stocks inwards our coverage, we believe AGS benefits the to the highest degree from slowing rising rates, where take down interestingness rates would backing both the valuation and deleveraging.”
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