As the major U.S. stock indices slipped in May, largely due to weakness in the energy sector, and signs that consumer demand and confidence may be fading, the AGEM Index took a more aggressive turn. After making significant gains over the last two months, the AGEM Index pulled back nearly 2.83 points, or 2.5 percent, during the month of May 2011. The index of 17 publicly traded global gaming suppliers ended the month at 109.75, remaining more than 5.9 percent higher than the same period a year ago. For comparison purposes, the Standard & Poor’s 500 Index declined 1.1 percent and the NASDAQ Composite slipped 1.3 percent during the past month. The Dow Jones Industrial Average turned down more than 1.5 percent during the month of May.
While eight suppliers witnessed increases in their stock price, their contributions to the index were modest. Selected positive contributors to the index during the month included the following:
• Konami (KNM) added 0.82 points to the index due to a 4.92-percent increase in its stock valuation.
• Ainsworth Game Technology (AGI) posted an increase of 36 percent in its stock price, contributing 0.20 points to the index.
The downward movement of the overall index was largely attributable to a few suppliers. It is worth noting that the two largest negative contributors to the index in May were the largest positive contributors last month. Their dip this month does not erase the gains from April, and those selected negative contributors to the index included:
• Lottomatica (LTO) reported a 6.76-percent decline in its stock price, removing 2.12 points from the index and accounting for the largest share of the index’s loss during the month.
• International Game Technology (IGT) contributed negative 0.79 points to the index with its stock valuation falling 2.54 percent.
To help ease the pain of a gambling sector suffering from a three-year illness, Asia continues to be the prescribed medicine of choice for multi-national operators. Gaming revenues in Macau rose to more than $3 billion in May 2011, a remarkable 42.3-percent increase over the same period of the prior year. The new monthly record for gaming revenue outpaced April’s record by 18.5 percent and was partially attributable to the opening of Galaxy Entertainment Group’s new casino Galaxy Macau. Opening May 15 and boasting 450 gaming tables and space for 1,500 slot machines, Galaxy Macau is expected to continue pushing gaming revenues on an upward trajectory. The success of Macau has allowed American-based gaming operators to offset domestic weakness by capitalizing on it and the entire region’s growth.
Although late to enter the overseas market, Pinnacle Entertainment took a 26-percent stake in Asian Coast Development’s project on the Ho Tram Strip in south Vietnam. The investment allows Pinnacle to enter the Asian gambling market by developing a hotel-casino. Operators hope Vietnam will be able to emulate the success enjoyed by operators in Macau and Singapore. The project will compete with MGM Resorts International’s hotel-casino development expected to open in 2013. While MGM Resorts International is the first to invest in Vietnam’s Ho Tram Strip, it is the latest to capitalize on an initial public offering for its Macau assests.
Following Wynn Macau Limited (a subsidiary of Wynn Resorts Limited), which raised $1.6 billion through its own IPO in October 2009, and Sands China Limited (a subsidiary of Las Vegas Sands Corp.), which raised nearly $2.5 billion a month later, MGM has now added its name to the Hong Kong stock market. At the time of publishing, MGM China (a subsidiary of MGM Resorts International) raised approximately $1.4 billion in net proceeds through its IPO, and closed its first day of trading up a modest 1.7 percent.
The result of these public offerings provides increased liquidity by selling interests in generally profitable assets. While these companies can enjoy a one-time infusion of cash for general operating purposes or capital investments, including expansions, fundamentals in their operating locations remains in the spotlight.
With debt maturities having been pushed further out in the downturn, casino properties in the United States have more time to recover. In the interim, it is likely that operators will continue to experience downward pressure on investments in new gaming equipment and technology. Additionally, global gaming suppliers will likely focus investment dollars abroad to build up business in emerging markets where capital expenditures are being made.
The AGEM Index and analysis is prepared by Applied Analysis, a Nevada-based advisory services firm.