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Two good value stocks

Posted By James Dunn On In Shares | No Comments

Looking for value on the ASX? So is everybody. Here are two good-value stocks, operating in global markets that they understand very well.

1. Light & Wonder (LNW, $133.69)

US gaming machine and software maker Light & Wonder came to the Australian share market in May 2023, initially keeping its Nasdaq listing; but the company has confirmed that it will transition to a sole ASX listing by the end of the year. LNW is a constituent of the S&P/ASX 100, but the consolidation into a sole listing is expected to see LNW move into the S&P/ASX50, creating greater shareholder value through increased index demand.

Light & Wonder is also creating value by buying-back its own shares: the recently announced US$500 million increase to its on-market buy-back program takes the total to US$1.5 billion. So far, the company has bought back about US$550 million in shares, leaving about US$950 million in remaining capacity – which broker Morgans says is equivalent to about 12% of the market capitalisation.

The Las Vegas-headquartered LNW designs, develops, manufactures, and distributes gaming machines and video gaming terminals, with a market footprint spanning North America, the Middle East, Africa, Europe and Asia-Pacific. It is a global leader in cross-platform games and entertainment with a focus on poker machines and digital gaming.

Light & Wonder operates under three key business segments, being Gaming (land-based, 65% of FY24 revenue), SciPlay (social gaming, 26 per cent of revenue) and iGaming (online gaming, 9 per cent). It also has a small charitable gaming segment, which it is expanding with the recent purchases of the charitable gaming assets of Grover Gaming and G2 Gaming; the full integration of which will position L&W as the leader in the fast-growing charitable gaming space.

L&W is valued at about half of what its bigger Australian-based rival, gaming machine behemoth Aristocrat Leisure, is valued at; but analysts think the move to a sole listing – as well as increasing its global “installed base” of units in operation, and average revenue per day of each, will help to narrow that discount. There’s no dividend yield at L&W, but analysts believe the stock is cheap, with plenty of scope for the share price to grow as the discount to Aristocrat starts to close. Using Aristocrat as a valuation proxy, on price/earnings (P/E) grounds Macquarie’s analyst believes LNS could be worth $295 a share – but the broker believes some valuation discount is still likely, and it settles on a price target on the stock of $180.00. At the moment, Ord Minnett is the most bullish broking firm, with a price target of $224 for Light & Wonder.

2. Gentrack (GTK, $9.28)

I looked at impressive Kiwi outfit Gentrack Group in February (can we link to SR of 12 February 2024), when it was trading at $6.77, and again in November 2024, (can we link to SR of 25 November 2024), when it was trading at $9.20, and I said there was “still plenty of upside for this emerging star. There still is. GTK shot as high as $13.01 in November 2024, but it has returned to levels around $9.20.

New Zealand-based Gentrack provides essential software and services to the utilities and airports industries: its market segments of energy, water and airports are growth markets providing essential services. The company has more than 60 energy and water utility companies as customers around the world, as well as a swathe of major airports: is a portfolio of large-scale contracts for mission-critical billing solutions, which create high switching costs and customer stickiness.

Gentrack provides services for more than 220 utility and airport sites (140 airports) in more than 30 countries. Some of its customers include EnergyAustralia, Npower, Genesis Energy, Melbourne Airport, Sydney Airport, Gatwick, Schiphol, Orlando International Airport, and Auckland International Airport. GTK moved across to the ASX (in a dual listing) in 2014.

At the half-year (31 March 2025) the core utilities business generated almost 83% of the revenue of NZ$112 million. The Utilities platform (G2) is designed to support the core billing, customer care and collections processes, with Salesforce integrated in the front-end (in 2022, Gentrack – in partnership with Salesforce and AWS – launched g2.0, a next-generation platform that allows utilities to launch new propositions in days, reduce cost-to-service and improve customer experience.)

The rest of the revenue came from Veovo, the company’s aviation software platform, which helps airports manage passenger flows, queues, flight and gate information, baggage handling and other tasks. Gentrack positions Veovo as an “intelligent airport” platform. Veovo is now used in more than 140 airports, in 25 countries, using data insights to improve operations. Veovo is leveraging this business into the rail and transit, road traffic and ski and theme park markets.

In 2024, Gentrack invested in Australian energy retailer Amber, which provides customers with direct access to real-time wholesale electricity prices and cutting-edge AI technologies to optimise household energy use in real-time. Amber is releasing its electric vehicle (EV)-to-grid automation product (car battery as a home battery) and licensing its technology to utilities internationally through a white labelling scheme through Gentrack’s global utility customer base.

In the March half-year, Gentrack’s total revenue rose by 9.8%, to NZ$112 million (utilities revenue grew by 7.2%, while airport revenue grew 24%). Recurring revenue lifted 16.7%, to NZ$76.4 million, or 68% of total revenue); earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 5.1%, to NZ$13 million; and statutory (reported) net profit surged 34.7%, to NZ$7.2 million.

Gentrack describes FY25 as a year of transition as it expands into Asia, the Middle East and Europe. For the full-year result, the company is expecting revenue to be at least $230 million, and EBITDA to grow faster than revenue, at a margin expected to be above 12%. The company has mid-term guidance of growing revenue at a compound annual growth rate (CAGR) of 15% and an EBITDA margin of between 15% to 20%, after expensing all development costs.

Analysts expect strong earnings per share (EPS) growth this year and next, with Stock Doctor’s numbers (from five analysts) projecting 80%-plus EPS growth in the year to September (FY25), moderating to 47%-plus growth in FY26.

Gentrack’s customers rely on its software, which becomes more difficult and expensive to replace the longer it is embedded – it is a very “sticky” customer base. The proportion of revenue that is annuity-style is increasing, and the company is ramping-up sales and marketing (S&M) and R&D investment to capture emerging growth opportunities.

Gentrack continues to firm as a long-term growth story, of a company operating in two niche markets that it knows really well. Analysts are distinctly positive on GTK; the most bullish is Morgan Stanley, which has a price target on the stock of $13.50.