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US – AGEM Index drops in July

By - 11 August 2014

The AGEM Index declined in July 2014 after increasing 6.41 points in June 2014. In July, the composite index fell to 183.61, which is down 1.73 points or 0.9 per cent from the prior month.
Compared to the same month of the prior year, the index is up 3.6 per cent.

The AGEM Index witnessed month-to-month declines in five of the first seven months of the year. During July 2014, 11 of the 17 global gaming equipment manufacturers reported decreases in stock price when compared to June 2014, with five down by more than 10 percent. Of the six companies that reported month-to-month gains in stock price, three were up by more than five per cent.

The broader markets reported similar results in July, with each of the major indices reporting month-to-month declines. NASDAQ ended the month at 4,369.77, falling 0.9 per cent compared to June. Meanwhile, the S&P 500 fell 1.5 percent to 1,930.67. The Dow Jones Industrial Average reported the greatest monthly decline in July, falling 1.6 per cent from 16,826.60 to 16,563.30.

International Game Technology (IGT) contributed 1.91 points, due to a 6.4 per cent increase in stock price to $16.93. With a stock price of AU$5.70, up 8.4 per cent, Aristocrat Technologies (ALL) contributed 1.79 points.

Konami Gaming (KNM) reported a 5.5 per cent increase in stock price to $23.39 and contributed 1.44 points.

Crane (CR) contributed negative 2.22 points, due to a 7.7 per cent decline in stock price to $68.61.
Bally Technologies (BYI) reported a stock price of $60.17, 8.4 per cent and contributed negative 1.42 points.

The gaming equipment supplier industry continues to evolve with a number of mergers and acquisitions. Last year, Scientific Games acquired WMS for $1.5bn, while Bally Technologies purchased SHFL Entertainment for roughly $1.3bn. In the past month, two more major acquisitions were announced within the industry as consolidation continues.

In mid-July, GTECH announced plans to purchase International Game Technology for a reported $6.4bn. Under the agreement, GTECH will pay $4.7bn in cash and stock and assume $1.7bn of IGT’s net debt. The two companies will combine and apply for a listing solely on the New York Stock Exchange (NYSE). The new company, which is expected to operate under the GTECH name, will be headquartered in the United Kingdom. However, it will continue to operate locations in Las Vegas, Providence and Rome. The transaction is expected to close in early 2015 after it receives approval from IGT and GTECH shareholders and regulatory agencies.

IGT and GTECH recently reported their operating results for the latest period. IGT reported a 19.2 per cent decline in net revenues during its fiscal third quarter of 2014, falling to $467.6m. Gaming operations revenue fell 12 per cent to $217.6m, primarily due to a 10.9 per cent decline in the installed base to 50,500. Product sales revenue reported an even more substantial 35.6 per cent decline to $166.9m, as machine units recognised fell 45.5 percent to 7,300 and the average sales price fell 10.5 per cent to $11,900.

GTECH reported revenues of €751m in its second quarter of 2014, which represents a 1.4 per cent decline from a year ago. During the period, service revenues increased 0.3 per cent to €682m, and product sales revenues declined 15.9 per cent to €69m.

On August 1, Scientific Games announced plans to purchase Bally Technologies for $5.1bn. As part of the deal, Scientific Games will acquire Bally Technologies’ outstanding shares for $3.3bn and assume the company’s debt of $1.8bn. The transaction will be Scientific Games’ second acquisition of a slot manufacturer in the past year and is expected to close in 2015 after gaining the necessary approvals.
Scientific Games reported revenues of $416.9m in the second quarter of 2014, which is up $181.9m from last year, due to the addition of WMS. The company’s installed based totalled 35,443 at the end of the period, up from 26,277 a year ago, partially due to the addition of 8,732 WAP and premium participation units from WMS.

As these transactions near completion in the coming year, the mix of participants in the AGEM Index will adjust to reflect recent consolidation.

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