After seven months of consecutive gains, sparked by a rally in the broader financial markets earlier this year, the AGEM Index turned course and slid down by the end of October 2009. Falling 10.9 points, or 9.3 percent, to a reported 105.88 value, October’s decline was the sixth largest drop since the index’s inception in 2005. However, it is important to note that the five larger declines also occurred during the latest recession and that stock valuations outperformed during the rally. Pricing recently retreated to levels more in line with historical reported earnings and estimated future performance.
By the end of October, for each member of the index that posted a gain in its stock valuation, three declined. Selected positive contributors to the index during the month include: (1) Bally Technologies (BYI) adding 0.34 points to the index based on a 2.66 percent increase in its stock valuation; (2) Ainsworth Game Technology (AGI) contributing 0.08 points to the index driven by a 26.92 percent increase in its stock price; and (3) Transact Technologies adding 0.02 points to the index with a 6.98-percent improvement in its stock performance.
International Game Technology (IGT) reported a 16.95 percent decline in its stock performance, contributing a negative 5.23 points to the index, and WMS Industries (WMS) posted -1.41 points to the index with a 10.28 percent decline in its stock valuation; together they composed more than 60 percent of this month’s overall loss in the index. It is important to note that for the second time in two months, WMS issued additional shares of common stock sourced to conventional convertible notes. Additionally, the stock was impacted by its third quarter earnings released the last day of October in which its profit jumped but fell short of Wall Street estimates. International Game Technology closed the same day down 3.6 percent on similar speculation regarding its earnings report.
Analysis by Union Gaming Group
The AGEM Index 9 percent decline is directionally consistent with the broader markets’ performance in October (S&P 500 lost 2 percent). Gaming’s higher relative beta explains the index’s typical outperformance/underperformance during market strength/weakness, respectively. The suppliers’ decline in October is underscored by numerous events that collectively concerned investors regarding the timing of an eventual recovery in the sector. In particular Wynn Resorts, Las Vegas Sands, Boyd Gaming and Harrah’s reported 3Q results that were indicative of ongoing weakness in Las Vegas, without much evidence of stabilization/recovery. On the other hand, MGM MIRAGE numbers demonstrated stability in pricing/volumes, bolstered by market share gains.
While the market was absorbing this data, US Airways announced a capacity reduction to Las Vegas despite data during the month (and into November) that suggests volume declines are less bad in Vegas and better in some regional casino markets. WMS fiscal 1Q results were solid in the context of a domestic replacement trough, but management’s financial guidance concerned investors who now place more risk on the back fiscal half of fiscal 2010. This impacted sentiment on the rest of the gaming suppliers during October despite results from Bally that were notable and saw an increase in financial guidance.
A number of other events round out October, most favorable-related to prospective gaming expansion as states look to address budgetary issues. These include additional slot licenses in California, tables advancing in Pennsylvania, Delaware considering more casinos, Minnesota considering a referendum for slots, Illinois’ 10th license inching forward, Rhode Island getting atypical support from the governor for more casinos, Florida approving electronic tables, Michigan looking to advance racinos, and Maine attempting to expand.
The AGEM Index is prepared by Applied Analysis, a Nevada-based advisory services firm. The industry analysis is prepared by Union Gaming Group, an independent research firm.
Comments
Post new comment