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Contributors: Douglas McIntyre Jon C. Ogg

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Wednesday, September 13, 2006

Cryptologic's Impressive Creep Higher


Cryptologic Inc. (CRYP) is a stock that we have been watching and monitoring for some time since the US decided to firmly go after online gambling companies outside of the US borders and even by going after non-U.S. citizens. It is amazing that since the first arrest of an international online gambling CEO as he was passing through the US and then after another arrest of an executive from another international online gambling company has managed to keep going up. The company also trades on the London Stock Exchange under the ticker “CRP” and trades on the Toronto Stock Exchange under the ticker “CRY,” but its shares are more active on the NASDAQ by far.

Before we digress too far, Cryptologic is a Toronoto, Canada-based developer of online gaming software and systems that allow online gambling companies to facilitate their operations. It primarily operates in Canada, Cyprus, and the United Kingdom. It provides licensing, e-cash management, and customer support services for its Internet gaming software to third-party gaming operators. Cryptologic’s product offering is a Internet-based software suite featuring casino table and slot games, player-to-player poker, multi-player bingo, multiple languages, multiple currencies, multiple platforms, play-for-fun and play-for-cash mode, and an integrated, proprietary e-cash management system.

Almost every analyst that covers the company is from a Canadian brokerage firm. Maybe US researchers fear getting arrested just for covering it in the US, too. That is a bit of a joke aimed at the US regulations prohibiting online gambling outside of formats they have approved, but you get the drift.

It is even the engine behind the new Playboy-branded poker site. On Monday, one of the Canadian brokerage firms called Canaccord Adams downgraded the company to a Sell rating. The stock is still higher than then. Forbes had an article that called the company a truly cheap stock, and they outlined why it was cheap even with the loss of potential customers and the issues surrounding online gambling. And they say old-world media, even if it is through online operations, is dead?

This stock has crept up from its sub-$20 handles after the first U.K. online gambling executive was arrested in the US, and is now up at $25.97. The 52-week trading range is $14.84 to $29.20, so it is still hanging toward the high-end of that trading band. As you can see on the chart from bigcharts.com that it has had a hard time staying over $26.00, but this has been impressive that it has defied the wrath of regulations out of what is the largest economy in the world.

This is the sort of stock performance where we would like to request a CEO interview for those of interest, so please email us if you have an interest in seeing further information on this company.

HERE is what we said on the company last week; and HERE was our first noting the situation in July before the stock started its strong run-up.

The guidance offered with its last earnings release in August is provided here: For Q3 2006, CryptoLogic forecasts revenue of $26.5-$27.0 million and earnings of $6.6-$7.0 million, or $0.48-$0.51 per diluted share. These estimates reflect the fact that Q3 is typically the softest quarter for Internet gaming, as players spend less time online during summer months. Also, licensees' poker room activity may decline between July 28 and August 10 when serious players are focused on the main event of the game's premier land-based tournament, the World Series of Poker.

Maybe there are some speculating the U.S. will get real on its regulation of non-U.S. entities. Maybe there is speculation that this will get dropped after the elections. Who knows for sure, but this has been impressive that the stock has been hanging in there and defying the news.

Jon C. Ogg
September 13,2006

Jon Ogg can be reached at jonogg@gmail.com; he does not hold any position in stocks of the companies he covers.
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