Ainsworth warns on sales

Ainsworth Game Technology has warned that 2015 revenue is likely to fall by around 2%, as opposed to previous guidance for it to increase (see Ainsworth: Interim result 2015 on 2 Mar 15 (Buy — $2.49). Net profit, however, is expected to be 'similar' to the $62m reported in 2014 assuming no adverse movements in foreign exchange rates.

The reason for the revenue decline is continued poor sales in the Australian market, which is not surprising given main competitor Aristocrat continues to perform well here (see Aristocrat: Interim result 2015 on 28 May 15 (Hold — $8.08).

The slot machine business is volatile due to the uneven nature of new game releases and so at this stage we aren't too concerned with the company's weak local performance. Our investment case is based on the potential for international expansion over the next five or ten years, primarily in the Americas, and here the company appears to be performing strongly, with sales in the Americas and Asia expected to rise 40% in 2015. This should mostly compensate for weak Australian sales in the current year.

Unsurprisingly, the company expects its domestic performance to improve in coming years as new games are released and it increases its share of new games shipped. We'll continue to monitor its Australian performance, however, as large permanent declines in market share could highlight more serious problems.

Yet assuming Ainsworth earns around $60m NPAT in 2015, it's currently on a PER of 15 and pays a partially franked 3.6% dividend yield. That looks cheap for a company with good future growth prospects. BUY.

Note:  The model Premium, Income and Growth portfolios own shares in Ainsworth.

Disclosure: The author owns shares in Ainsworth.