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Should you buy Ainsworth Game Technology Limited (ASX:AGI) shares after its strong second half?

The Ainsworth Game Technology Limited (ASX: AGI) share price will be on watch on Thursday after the struggling game technology company released its full year results after the market close.

Here is how Ainsworth Game Technology performed in FY 2018 compared to a year earlier:

  • Revenue fell 5.8% to $265.6 million.
  • Underlying EBITDA down 19.6% to $67.6 million.
  • Profit before tax down 9.8% to $39.2 million.
  • Profit after tax dropped 15.8% to $31.9 million.
  • Normalised profit after tax plunged 37.2% to $31.4 million.
  • Earnings per share of 9 cents.
  • Outlook: Higher quality earnings are expected to lead to improved financial results.

While the company’s performance in FY 2018 was extremely disappointing, a significant decline in profit was expected after its weak first half result. In fact, this result was slightly ahead of revised expectations thanks to a strong second half performance. In the second half the company generated profit before tax of $23 million, up 68% on the $13.7 million it reported in the first half.

Chief Executive Officer, Danny Gladstone, appears to be pleased with the return to form in the second half. He said, “We are pleased to deliver FY18 results slightly ahead of our upgraded guidance. Our performance continues to show signs of improvement and is a direct result of the strategies implemented to expand our international footprint, invest in technology to enhance our product suite, and build our participation fleet to improve the quality of our earnings.”

How did the company’s segments perform in FY 2018?

The company’s key North American business saw revenue increase 4% to $105.7 million, though segment profits fell 9% to $40.7 million. Revenues in Latin America were flat at $78.7 million, with segment profits down 19% to $30.6 million. Australian revenues fell 14% to $63.6 million, whereas profits fell to $19.4 million. The Rest of the World segment was a poor performer and posted a 37% decline in revenue to $17.6 million. Profits declined 31% to $10.4 million.

While it was its International businesses that did a lot of the heavy lifting in the second half, management has advised that it has seen early signs of improving market share in a challenging domestic market. For example, in June the company commanded a 15% share of new installations in NSW, which was more than double its average share for the year. This was driven by the successful launch of EVO cabinet and Golden Cash game series.

Should you invest?

Based on this result Ainsworth Game Technology’s shares are trading at a little under 13x earnings.

While I think this is great value and could make the company a top turnaround option for investors, I still prefer industry peer Aristocrat Leisure Limited (ASX: ALL). Its shares may be expensive, but the company is kicking goals at the moment thanks to its impressive Digital business.

Alternatively, pokie machine buyers such as Crown Resorts Ltd (ASX: CWN) and Star Entertainment Group Ltd (ASX: SGR) could be worth a look.

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