The share price of gaming machine company Ainsworth Game Technology Limited (ASX: AGI) is down 6.25% to 90 cents in Friday trade following this morning's trading update announcement for the first half of FY19.
Domestic issues
The trading update was a mixed bag with some positive news in Ainsworth's international operations offset by a negative outlook for the company's Australian operations that appear to be the catalyst for this morning's sell-off.
The company expects first-half revenues and profit before tax to be ahead of the prior corresponding period for its North American and Latin American businesses. However, Ainsworth expects revenues and profit before tax for its Australian segment to be materially lower for the first half of FY19 compared to the prior corresponding period.
The highly competitive trading conditions in the Australian market have continued into FY19, with the company noting that overall industry demand has declined by approximately 10%. Furthermore, certain timing issues around the approval of complex new products and the decision to defer product launches into the second half will affect Ainsworth's short-term financial results.
The company is upbeat however about its second half prospects as it expects its new products to gain traction in the Australian market and generate higher returns on investment.
Ainsworth also expects a slightly negative impact from the adoption of the new accounting standard AASB 9, which will require a higher amount of provisioning for receivables credit risk.
Earnings impact
With all that in mind, the company expects to report profit before tax of approximately $8.0 million for the first half of FY19. This is approximately 29% lower than the $11.3 million of underlying profit before tax Ainsworth generated in the prior corresponding period. The prior year number excludes currency movements and $4.9 million of one-off, non-recurring gains.
The company expects a strong second half skew with profit before tax excluding currency movements expected to increase by at least 75% over the $8.0 million forecast for the first half. A further update will be provided at the release of Ainsworth's interim results in February.
Foolish takeaway
This was another disappointing trading update from Ainsworth that saw its share price make a 52-week low of 85 cents this morning before recovering slightly. The company has suffered from a number of operational issues over the last 12 months that has seen it fall out of favour with its share price down 59% over the period.
Investors seeking exposure to the gaming sector may want to look elsewhere towards companies such as Crown Resorts Ltd (ASX: CWN) and Star Entertainment Group Ltd (ASX: SGR).
