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Ainsworth pins hopes on game development as profit falls 45pc

Emma Rapaport  |  28 Feb 2019Text size  Decrease  Increase  |  
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Ainsworth Game Technology has suffered a 45 per cent fall in first-half profit, a result largely expected, as fierce competition in the domestic market bites.

The pokies maker’s adjusted profit before tax fell from $16 million to $8.9 million – a drop of 45 per cent; however, this was in line with what the company was expecting.

Ainsworth's stock closed down 4.88 per cent yesterday, falling to 78 cents. The stock is trading at a 35 per cent discount to Morningstar's $1.20 fair value estimate.

The Ainsworth board has suspended the dividend, a decision Morningstar analyst Ragonese said was disappointing but prudent as it would allow the company to focus on improving operations.

"The balance sheet is in good shape, and I expect the board will resume paying dividends in the near future," Ragonese said.

Ainsworth expects the second half to be stronger than the first because of momentum in international markets and upcoming game releases in Australia.

However, Ragonese notes management's tone is more subdued than previous guidance.

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"Management’s previous guidance was for 75 per cent growth in profit before tax in the second half of fiscal 2019. However, this has been toned down and the company now expects improved profit performance in the second half.”

Earnings before interest, tax, depreciation and amortisation before currency impacts fell 21 per cent to $29.7 million, while total revenue before currency fell 2 per cent to $118 million.

Domestic sales fell 47 per as sales in North America increased 40 per cent.

Ragonese had been bracing for the weaker result, given the revised guidance issued in November last year, and said Ainsworth's domestic market challenges appeared to be ongoing.

"Challenges resulted in domestic unit sales and revenue halving – a very disappointing result," he said.

Chief executive Danny Gladstone acknowledged the domestic challenges and affirmed the company's renewed focus on new product development.

"Though I am disappointed with the first-half results I expect that new game releases will improve performance and create revenue opportunities," he said.

"In 2019, while recognising the intense competitive landscape, we will continue to pursue development initiatives and actively recruit experienced game developers and utilise third-party developers to harness the best of our internal capabilities with external expertise."

On a more positive note, Ragonese said the company's North America segment performed strongly, with revenue and unit volumes up 40 per cent and profit increasing 47 per cent.

However, weaker figures from the company's installed, or leased machines, detracted from the overall strong performance, shrinking by 23 per cent.

"This segment is typically more resilient and a reliable earnings stream for the company," he said. "In an ideal world, we'd like to see this area growing."

Ragonese was pleased to see the company commit to increasing investment in game design and development expenditure and expects this to contribute to improved performance over the long term.

is the editorial manager for Morningstar Australia. Connect with Emma on Twitter @rap_reports. You can email Morningstar's editorial team editorialAU[at]morningstar[dot]com

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