Why Ainsworth Game Technology Limited shares have been smashed today

The Ainsworth Game Technology Limited (ASX:AGI) share price has been smashed on Friday and is down 29% in early trade. Here's why…

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Ainsworth Game Technology Limited (ASX: AGI) share price is on course to have a horrendous finish to the week following the release of a trading update this morning.

At the time of writing the gaming technology company's shares are down a massive 29% to a 52-week low of $1.37.

What was in the update?

A number of short term factors have caused profit expectations for the second-half of FY 2018 to be rebased.

Ainsworth Game Technology's management had previously provided second-half guidance of profit before tax (excluding currency movements) to be "modestly ahead" of the $42.2 million it achieved in the prior corresponding period.

This would have taken its full-year profit before tax to at least $58.4 million after posting profit before tax of $16.2 million in the first-half of FY 2018.

However, according to the update, profit before tax in the second-half is now expected to be around $20 million, 52.6% lower than the prior corresponding period.

This means that full-year profit before tax will come in at approximately $36 million, well short of its guidance and 37.2% lower than FY 2017's $57.4 million.

What happened?

Management has placed the blame on its domestic sales being adversely affected by factors including competitive activity, regulatory approval delays in product submissions, and delays to scheduled key game releases until the first-half of FY 2019.

Furthermore, Latin America sales are lower due to a preference for second-hand gaming machines and North American profits have been hit by the strong growth of its low margin PacMan product.

Should you buy the dip?

Based on its updated guidance I estimate that Ainsworth Game Technology's shares are changing hands at 19x FY 2018 earnings.

While these issues may be short term and management "confidently expect to improve our performance in FY19", I wouldn't be in a rush to pick up shares until there has been evidence of a turnaround.

Instead, I would consider high-flying industry peer Aristocrat Leisure Limited (ASX: ALL), which I suspect is stealing market share away from Ainsworth Game Technology.

Or alternatively, investors might even want to consider buyers of these products such as Crown Resorts Ltd (ASX: CWN) and Star Entertainment Group Ltd (ASX: SGR).

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »