Ainsworth Game Technology issues profit warning

Ainsworth shares sank after the pokies manufacturer warned competition would contribute to a fall in profit.

Pokes machines on a casino gaming floor.

Shares in Ainsworth Game Technology sank more than nine per cent in early trade after the poker machine manufacturer warned that “intense” competition and delays to new product approvals would mean a drop in second-half profit.

The company flagged a lower profit figure for the six months through to June compared to the prior year, with profit before tax and excluding one-off items expected to be around $4 million.

That compares to a profit before tax of $23m for the second half in fiscal year 2018.

Ainsworth said its full-year result would be hurt by market pressures as well as by delays to new product approvals, which had not occurred when expected.

However, those approvals were now being secured and were expected to improve performance and produce gains in domestic market share for fiscal year 2020, Ainsworth said.

Yesterday, Wilsons analyst Mark Bryan downgraded his recommendation on the stock to sell, saying the company had been in perennial forecast downgrade mode for five years and that trend had been continuing.

“Domestically, slots buyers are seeing a fragile demand environment leading to reduced capex,” Mr Bryan said in a note to clients. “This restricted market opportunity is being compounded by Ainsworth product failing to resonate with buyers.”

He said clubs had reduced their capital expenditure in the face of political uncertainty and house-price softness, which had led to slower buying of gaming machines overall.

Ainsworth also flagged a non-cash impairment charge on its Australian digital assets of around $5m, which included the value of the goodwill associated with its service business in New South Wales given lower unit volume sales, as well as a $2m reduction in the value of the Ainsworth’s shares in social media gaming company 616 Digital.

Continued progress in Ainsworth America’s business had been partially offset by a lower-than-expected contribution from Australia.

North America is expected to deliver a similar result to the prior half when the company delivers its full-year results in August, while Latin America is expected to deliver a slight increase.

Despite the profit warning, Ainsworth told the market its balance sheet remained strong and it was well-placed to fund growth initiatives and technology investments.

“Ainsworth continues to operate well within its financial covenants and expects to be cash flow positive again in fiscal year 2019,” the company said.

“Ainsworth is progressing with the development of new products and technologies with the view to improving future profit performance.

“Additional opportunities to collaborate with Ainsworth’s major shareholder Novomatic AG and other external content providers are being actively pursued.”

Shares in Ainsworth had recovered somewhat from an early slump, to close down 1.2 per cent at 23 cents apiece on Tuesday.