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Ainsworth Video



 

Stock Of The Day - Ainsworth (BUY)

Ainsworth Game Technology Limited (AGI) came out with its half year results ended 31 December 2014 with a net profit after tax of $34.6 million, which was 3% down from $35.7 million in the previous corresponding period (pcp) in FY2014. The revenue for the period was $111.9 million, which is 8% lower from $121.8 million reported for pcp. The Company declared a fully franked interim dividend of 5 cents per ordinary share to be paid on 21 April 2015. The dividend payout ratio of 47% of profit after tax was highlighted.

Profit and Loss Summary (Source – Company Reports)

There was a lowering of the segment profit contribution from Australia of the order of $28.5 million from $46.9 million. Primarily, product transition issues along with slightly submissive corporate activity led to the aforementioned contribution. Nonetheless, this was balanced by the earnings performance from Americas that emerged with a contribution of 39% ($20.6 million) to total segment profit as opposed to only 20% ($12.4 million) in pcp.

International revenue was 45% up with $58.4 million over the pcp. Americas constitute 47% ($52.7 million) of total revenues from earlier 28% ($34.4 million). Revenues of $30.2 million were noted from North America indicating a surge of 47%. Significant contributions from Canada and Oklahoma were recorded with strong sales in California that yielded unit sales volume increase of 39% to 1,116 units. Owing to the release of robust performing game brands in North America, the participation install base raised to 1,223. Revenues of $22.5 million indicating an increase of 63% emanated from South America. Mexico and Argentina reported for good sales activity with unit sales volume going up 62% to 1,087 units.  South American participation install base rose to 1,063 with support from games such as Multi Win, Rio Grande Rapids and Players Paradise. In Americas, the A560SL performed well with game brands such as Sweet Zone™ producing more than 150% of house on average.


Financial Performance (Source – Company Reports)

We do note that the domestic revenue added $53.5 million (48% of total revenue) which is 34% below $81.4 million of the pcp. The transitional impact of the A560X and A560SL products that are to be wholly approved in all domestic jurisdictions impacted the revenue. Introduction of new gaming taxes and regulatory pre-commitment requirements affected Victoria.



Segment Result_North America (Source – Company Reports)

A figure of about $14.5 million was witnessed as unrealised foreign currency gains. This was with regards to balance sheet translations (1HFY14 reported $4.2 million) and one-off costs of $2.0 million associated with investment opportunities’ assessment. This reflected a promising variance of $10.1 million over pcp. The Company reported income tax outflow of $10.9 million that resulted in an effective income tax rate of 24% as opposed to 22% of the pcp. Cost of sales were reported to be $41.5 million. 63% of gross margin was achieved as compared to 64% for FY14 wherein the decrease was owing to the diversification of product offerings. The gross margins also dipped due to increased revenue from South America at lower margins, new sales arrangements in core domestic markets for volume sales and transitional product costs based on launch of new products. The operating costs were $41.0 million indicating an 8% rise as compared to $38.0 million in the corresponding period in 2013. This was primarily due to higher selling costs and one-off transaction costs related to strategic investment opportunities. Net financing income was $15.8 million as opposed to a $5.7 million income in corresponding period in 2013 and net interest income was $1.5 million consistent with the pcp.




Performance Breakdown (Source – Company Reports)

Balance sheet is strong with total cash as at 31 December 2014 of $54.4 million, although below from that of pcp. A dip of $18.1 million (H1 FY14 with increase of $20.7 million) was reported as net cashflow in the current period including a dividend payment of $16.1 million, acquisition of property, plant and equipment of $4.4 million and payments for investments and licenses of $7.2 million. Cash inflows decreased to 59% due to submissive domestic sales activity, the timing of sales activity in the Americas and high inventory holdings.


AGI Daily Chart (Source - Thomson Reuters)

Overall, the result was more or less a replica of what the Company expected and conveyed earlier in its trading update, nonetheless, revenue gains from America, 23 new gaming licences and strong pipeline of new game titles in the Australian and North American market in 2H15 were the key highpoints. Growth is expected from the Asian market wherein progress is on track while opportunities are expected to emanate from Macau, Philippines and Korea. The online strategy is attaining momentum with the Company having installed the GameConnect™ Remote Gaming Server in a data center in the Channel Islands of Guernsey for content services in UK online casino platforms. Then GameConnect™ RGS is also expected to be going live with UK operators in Q4FY15. The Company has signed the B2B distribution agreement with Playtech PLC. The Company is also reportedly about to receive the approval for a UK Gambling software license for content being provided to operators via GameConnect™. Post the launch of Players Paradise™ Social Casino in January 2015, the Company aims to launch a second Social Casino site during CY15. The Company has also come out with a new issue announcement and application for quotation of additional securities and agreement. The FY15 outlook entailed total revenue growth of $244.1m expected on pcp backed by expansion in international markets. The domestic markets are also expected to contribute significantly in 2HFY15 based on progressive transition and approval of new product offerings. The construction of Las Vegas facility which started in Feb 2015 is expected to be complete by Q4FY16.

Based on the above, we put a BUY recommendation for this stock at the current price of $2.62.