Volatility continues to drive the broader equities markets. Although the United States markets ended the month of October with significant gains, the journey was a roller coaster. Of the 21 trading days, the Dow Jones Industrial Average posted only six with a gain or loss of less than 100 points. The remaining 15 days witnessed larger swings in activity, recording a one-day increase as high as 336.48 points and a one-day loss as low as -274.21 points. For the month, the Dow Jones Industrial Average expanded 9.5 percent, Standard & Poor’s 500 Index increased 10.8 percent and the NASDAQ Composite gained 11.1 percent.
The overall improvement in equities likely pushed many of the AGEM Index members upward as well, erasing the substantial loss from the prior month. The AGEM Index increased by 18 points during the month of October, up 17 percent from the prior month, to end with a composite score of 123.79. Based on points, the latest period represents the largest single-month gain since the index began in 2005 and on a level not seen since June 2008, or six months into the Great Recession.
Selected positive contributors to the index during the month included the following:
• International Game Technology (IGT) contributed 6.19 points to the index from a 21.06-percent gain in its stock valuation.
• Lottomatica (LTO) posted a 17.67-percent increase in its stock price, contributing 4.22 points to the overall index.
Selected negative contributors to the index included:
• Konami (KNM) reported a month-to-month decline of 1.96 percent in its stock price, removing 0.50 points from the index, but the stock remains nearly double where it stood one year ago.
• TransAct Technologies (TACT) contributed negative 0.01 points to the index, sourced to a 3.58-percent drop in its stock valuation.
Positive moves from foreign exchanges against the dollar assisted in the index’s expansion. Additionally, the index of global gaming suppliers is also down to 16 members, as GameTech International is no longer trading on the NASDAQ.
Broader economic and financial conditions are expected to continue to play a role in overall market volatility, including debt issues in the Eurozone. The euro’s stability notwithstanding, the regulatory environment, consumer confidence, and ultimately end-user spending will press the market forward. Given the latest post-quarter timing, it is a good time to review the latest third quarter earnings performances of selected AGEM Index contributors.
Bally Technologies reported revenues of approximately $195 million for the three months ending Sept. 30, 2011. While revenues rose 14.1 percent compared to the same quarter last year, costs and expenses also increased (15.2 percent) over the same period. Adjusted EBITDA edged up from $57.8 million to $59.1 million. Of the various revenue streams, sales of gaming equipment posted the largest gain, rising 26.3 percent to $64.4 million in the first fiscal quarter of 2012. Revenues were largely sourced to North America, at 81.4 percent of the total, but international markets are consuming a larger piece of the pie than they were a year ago when North America held a greater 85.3 percent share of all revenues. It is important to note that of the 2,329 units sold in the United States and Canada over the three-month period, 2,179 (93.6 percent) were replacement machines. Revenue overseas also posted a significant increase compared to the same three months ending in 2010, expanding 44.4 percent to $36.2 million.
From revenues of €740.9 million in the third quarter ending Sept. 30, 2011, EBITDA at Lottomatica increased 18.7 percent to €237.0 million. While 92.8 percent of all revenues were generated from services, product sales continued to rise to €53.0 million, or 35.8 percent, compared to the same three months in 2010. Of the various revenue segments, Lottomatica’s Italian operations witnessed the largest gain in revenue, growing at an aggressive 54.8 percent to €458.5 million. Although wagers from sports betting operations in the country declined (11.1 percent) compared to the last year partially due to the World Cup, machine gaming wagers more than doubled as a result of new video lottery terminals.
Assuming initial third quarter earnings reports foreshadow an overall positive trend for global gaming manufacturers, the future may give way to additional demand for sector stocks and improving confidence. While the AGEM Index is closer to reaching its pre-recession peak, it will be some time before global gaming suppliers report commensurate earnings levels achieved prior to the economic downturn.
The AGEM Index and analysis is prepared by Applied Analysis, a Nevada-based advisory services firm.