A standout in AGM season
In what was arguably the AGM season’s standout result, it was pleasing to read through the presentation by Ainsworth Game Technology Limited (ASX: AGI) and discover that much of the anecdotal evidence we had gathered a few weeks ago here largely proved reliable and correct.
The sale of the A560 gaming machines and suite of game titles to pubs, clubs and casinos around the world, given the heavy investment in the intellectual property, is now well and truly translating into sales momentum and market share gains.
Variety and sustainable entertainment appeal is the key to a successful gaming machine company, and based on their AGM commentary as well as industry feedback, it appears AGI is operating in a sweet spot.
Significant competitor to AGI, Aristocrat Leisure (ASX: ALL), made the following outlook statement at their recent AGM presentation: “In Australia, expect to regain share and improve revenues over the full year, with a significantly broader and more competitive portfolio that closes critical gaps”. AGI have clearly taken market share.
In the year to June 2013, AGI generated $124m revenue from Australia, up 21 per cent on the previous year. Given Aristocrat experienced such a weak result in this region (down 7 per cent to $180m), we expect this divergent trend to somewhat continue with AGI again generating much higher revenue and profitability figures.
Also in fiscal year 2013, AGI generated $74m revenue from its International Division. AGM comments suggest further growth in machines under revenue sharing arrangements coupled with rising yields should also translate into higher revenues and profitability.
Whilst we have anticipated this trend (which has been well covered in prior posts) there was one notable exception.
In terms of magnitude, AGI’s profit guidance for the December 2013 half-year is expected to be approximately 40 per cent ahead of the previous corresponding period. This represents phenomenal organic growth and is testament to just how well the business is tracking.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Watcher
:
Leonard Ainsworth created Aristocrat and is now chairman of Ainsworth. I remember looking at when Aristocrat had lost quite a bit of money in the US market (significant write downs) and I thought then that this newer company called Ainsworth would be quite successful, it seems in this industry at least, management is all important.
Also have a look at the board, all persons have gaming or hospitality experinece (all except the two lawyers… but one does cap raisings).
Roger Montgomery
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Please seek and take personal professional advice everyone…
Kent Wong
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I refer to Dan’s cooment,”i know of very few people around my age who are interested in feeding pokie machines…”
I have a couple of relatives who rarely play pokies or other games when they are young. Interestingly, they go to pokies after they passed 50+ and they do enjoy it due to the nature of the pokies game (simple to play, variety of machines, variety of bets, self-paced game, jackpots….etc)
What I am trying to say is the popularity of pokies machines will not be affected by ageing because more people will join the pokies games when they get old. The pokies machine / game itself has its own attraction.
Roger Montgomery
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ANother interesting insight Kent. Thank you.
Greg McLennan
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Looks like Seek’s plans mentioned at their AGM – to float one or two things – was well received today as well. It’s probably a good time to do that sort of thing but I’m a bit conflicted…..is it better to keep it in the business and compound or realise some of it now? I haven’t tried to work out the numbers but management seem to know what they’re doing so far. Market conditions are favourable at the moment.
Roger Montgomery
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When people are willing to pay 100x for something worth 5x its often better to let them have it. You will often be able to reacquire it for 5x down the track.
Greg McLennan
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Well, fair enough then. Sounds like you’ve done the numbers!
Dan Baillie
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Hi Russell, what do you think of the demographics of the punters who use these machines and how long until it may affect this industry as a whole. Being an early generation y member i know of very few people around my age who are interested in feeding pokie machines. perhaps the younger generations have come full circle and prefer playing the tables.
Roger Montgomery
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Good observation Dan. The biggest bulge in the population is 60 odd years of age so arguably 10-20 years to go….