How do you choose between the two gaming machine producers Aristocrat Leisure Limited (ASX: ALL) and Ainsworth Game Technology Limited (ASX: AGI)?
If you had a look at their respective performance this year, you might plum for Aristocrat, which has deliver shareholders a 48% capital gain since January. In stark contrast, Ainsworth shareholders have seen the share price smashed down more than 30% over the same period. The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is up 8.2% since the beginning of the year.
So why have these two similar pokie manufacturers performed so differently this year?
For one, Aristocrat announced that it had acquired slot machine maker Video Gaming Technologies (VGT), more than tripling the installed base of machines in North America from the current 8,200 to 28,400. While VGT cost Aristocrat US$1.3 billion, the acquisition is expect to add US$119 million in earnings before interest and tax (EBIT) to Aristocrat's ~$150 million earnings in the 2015 financial year. No wonder analysts expect earnings per share to grow 48% in 2015.
Aristocrat is also rolling out blockbuster pokie games based on popular movies and TV shows, such as The Walking Dead.
Looking at Ainsworth, analysts expect high-single digit growth in earnings per share over the next two years, after phenomenal growth over the past 10 years. Ainsworth has just 1,989 gaming machines in the Americas (one quarter of Aristocrat's North American base), but that was 72% higher than the previous year. The company is still generating strong growth in revenues and earnings, with the former rising 23% and net profit up 18% in 2014 compared to 2013.
Both companies are also expanding into the online space, which could represent a massive opportunity. At current prices, Ainsworth is trading on a prospective P/E ratio of 14.9x, while Aristocrat is on a P/E of 20.7x. Aristocrat currently pays a 2.4% unfranked dividend yield, but that could easily double next financial year as earnings rocket, while Ainsworth currently pays a 3.3% (also unfranked) dividend yield.
That appears to show Ainsworth to be the better bet, but one concern investors should be aware of is that Len Ainsworth, the current chairman and founder who also holds 49% of the company, is 91 years young. Losing Mr Ainsworth could be a massive blow to the company, one which could take the pokie maker years to recover from.
