Shares in gaming machine manufacturer Ainsworth Game Technology Limited (ASX: AGI) have been down in the dumps, losing 26% of their value over the past 12 months.
However, with growing US revenues and a potential change of control occurring, Ainsworth shares could be set for a re-rating. Here's what you need to know:
- Revenue rose 27% to A$142m
- Net Profit After Tax fell 4.3% to A$33.1m
- Earnings per share of 10.3 cents (down from 10.7 cents in prior period)
- Dividends flat at 5 cents per share
- Acquisition of Nova Technologies completed in January 2016
- Major shareholder Len Ainsworth to sell his stake (53% of the company) to Novomatic for $2.75 per share, pending regulatory approval
- Possible additional opportunities in Macau and Phillipines
- Cash of $18m, total debt of $17m
So What?
Lower net finance income and a higher effective tax rate appear to be responsible for much of the impact on Ainsworth's profit after tax, as operating profit actually improved by 14% in this period.
Segment results show that the Australian business continued to struggle, with total volumes declining. However, international revenues are growing at a rapid clip and just over 50% of Ainsworth's segment revenues now come from international sources.
The Australian segment appears to have greater profitability however, with more than 50% of reportable segment profit coming from the Australian segments. This is an item of concern considering total volumes dropped by 8% in the Australian segment during the first half.
Reading between the lines, this could be due to a product transition and the sale of new machines taking time to gather momentum among customers.
Now What?
It was a solid report from Ainsworth, with the company delivering on its geographic diversification strategy nicely. International results were enough to lift operating profits, although lower finance income, a higher effective tax rate, and a decline in Australian operating conditions prevented the company posting a lift in Net Profit After Tax.
Ainsworth has many opportunities to expand overseas both in existing and new markets, and investors should expect ongoing growth in international revenues. US revenues and profits should also increase after the recent acquisition of Nova Technologies last month.
Also on the international front, Chairman Len Ainsworth will sell his 53% stake in Ainsworth Game Technologies to global gaming giant Novomatic, pending regulatory approval. While Novomatic intends to retain Ainsworth's listing on the ASX as well as maintain Len Ainsworth as Chairman, the presence of a new owner adds uncertainty for shareholders.
However, Ainsworth Game Technologies continues to deliver impressive growth and based on this set of results as well as the recent price offered by Novomatic, the company looks somewhat undervalued today.
