Is Australian Gaming A Defensive Sector?

  • Jul 05, 2019 AEST
  • Team Kalkine
Is Australian Gaming A Defensive Sector?

Contemporary Australia is a booming region for art, publishing, films and gaming industries. With its vibrant culture, the entertainment sector in the market has continued to flourish, especially in recent years, thanks to the growing technology and youth involvement. The origin of the gaming industry dates to 1980, and ever since it has witnessed its share of growth and setbacks, sailing through the growing competition. The performance of the Australian gaming industry has been top-notch in the competitive global sphere and has been accoladed with industry awards.

Where is the Gaming Industry headed?

Mobile games, virtual reality and web games are picking up the pace, and according to the Australian Trade and Investment Commission, with the global games market likely to generate $100 million in annual sales by 2020, since Australia is a key player and a business powerhouse. Interestingly, the country has quite a few specialised video game tertiary educations and training institutions, making the growth trajectory even concrete.

The number of internet users had been incrementally progressing since 2015, and not much has changed in recent times as well. Moreover, active social media and mobile users have been increasing in Australia. This showcases that an Aussie citizen spends more time on their technological devices- playing games, apart from social media surfing and online shopping.

Australians accessing online content services (millions) (Source: ACMA)

In 2018, the gaming enthusiasts of the country spent more than $1 billion on the industry, making it count among the world’s top 15. According to market experts, the world’s spending was approximately $137 billion. As per a survey conducted by the Interactive Games & Entertainment Association, which is the industry association for video and computer games in the ANZ region, the industry had generated $118.5 million in the 2016-17 financial year. The largest overseas market was the US and Europe. However, the industry is striving attention from the federal government to support its growth and momentum, as around 80 per cent of the revenue coming through, was recorded to be from the overseas market.

In the light of this context, let us look at the 5 gaming stocks, that are listed on the Australian Securities Exchange, and understand their present stock performances and company updates:

Tabcorp Holdings Limited (ASX: TAH)

Company Profile: Listed on ASX in 1994 and headquartered in Melbourne, TAH provides the provision of gambling and other entertainment services and has wagering and media, gaming services, and Keno operations.

Stock Performance: On 5 July 2019, the stock of TAH was last valued at A$4.590, 0.879 per cent up with a market cap of A$9.19 billion. In the last one and six months, the stock has delivered a return of 3.17 per cent and 7.31 per cent with a YTD yield of 7.31 per cent as well.

Legal Claim by Racing Queensland: On 28 June 2019, the company notified that it had received a statement of claim by Racing Queensland, who had filed a complaint in the Supreme Court of Queensland, regarding the calculation of fees by TAH. The company claims to review the issue and defend itself and stated that the issue arose post introduction of point of consumption tax in Queensland.

2019 Macquarie Conference: On 30th April, TAH released a presentation related to the 2019 Macquarie Conference and stated that it had completed its combination with Tatts Group in December 2017 and introduced Take A Break for TAB as FY19 initiative. The revenue for FY18 was of ~$5.2 billion with the EBITDA at ~$1 billion.

TAH’s revenue and EBITDA (Source: Company’s Presentation)

Skycity Entertainment Group Limited (ASX: SKC)

Company Profile: Listed on ASX in 1999, SKC is into the gaming entertainment business and has its registered office in Auckland. It is listed on the NZX as well.

Stock Performance: On 5 July 2019, the stock of the company was at A$3.640, down by 0.546% from its previous close, with a market cap of A$2.46 billion. In the last one and six months, the stock has delivered a return of 4.57 per cent and 11.93 per cent with a YTD yield of 13.31 per cent.

Acquisition of Ordinary Shares: Under its on-market share buy-back programme (announced on 13 February 2019), the company acquired 45,452 ordinary shares at $3.8065 per share on 26 June 2019. Post this, till 27 June 2019, SKC had 672,351,166 ordinary shares as the total number of financial products of the class post the acquisition (exclusive of treasury stocks), and total number of financial products of the class held as treasury stock post acquisition.

2019 Macquarie Conference: SKC presented at the 2019 Macquarie Conference on 1 May 2019 and stated that the group reported revenue of $1,097 million and an EBITDA of $339 million.

SKC’s revenue and EBITDA breakup (Source: Company’s presentation)

Aristocrat Leisure Limited (ASX: ALL)

Company Profile: ALL was listed on ASX in 1996 and it designs, develops, produces and markets products and services like electronic gaming machines, casino management systems, and digital social games. Its registered office is in New South Wales.

Stock Performance: On 5 July 2019, the stock of the company was last valued at A$29.14, down by 1.919 per cent with a market cap of A$18.97 billion. In the last one and six months, the stock has delivered a return of 4.43 per cent and 38.19 per cent with a YTD yield of 41.07 per cent.

Legal Proceedings: On 3 July 2019, ALL notified that it has begun proceedings against Ainsworth Game Technology Limited (ASX: AGI), claiming infringement by Ainsworth of its IP rights and breach of the Australian Consumer Law.

Financial Results: As announced on 23 May 2019, ALL had recorded NPATA of $422.3 million, up by ~16 per cent.

ALL’s financial highlights Source: Company’s Report)

Besides the above-mentioned companies, there are small caps like EM1 and AGI, listed on ASX. Let us have a glance at their brief updates:

Emerge Gaming Limited

Emerge Gaming Limited (EM1), an online gaming provider was listed on ASX in 1971 and is headquartered in Subiaco. It is a small cap and penny stock, trading at A$0.030 on ASX on 5 July 2019 at 2:50 PM AEST, up by 7.1 per cent. The market cap of EM1 is A$18.36 million and its stock has delivered a YTD return of 300 per cent.

On 13 June 2019, EM1 agreed to develop a competitive gaming eSports platform based on its ArcadeX technology with Viacom International Media Networks Africa (Pty) Ltd. It also partnered up with Digital Circus Media LLC, who would launch its products across North America.

Ainsworth Game Technology Limited

Ainsworth Game Technology Limited (ASX: AGI) is a small cap gaming player on ASX that designs, develops and produces gaming machines, software and related equipment supplies. The stock of the company closed flat at A$0.690 on ASX (as on 5 July 2019). The market cap of EM1 is A$232.39 million and the stock has delivered a negative YTD return of 12.66 per cent.

As notified above, the company has been charged by ALL regarding infringement and use of ALL’s IP rights and breach of the Australian Consumer Law.

As per its trading update from 7 May 2019, the company is anticipating a Profit before Tax of ~$4 million for the 6-months period ending 30 June 2019. The net debt was expected to be of ~$7 million by 30 June 2019. Also, the Net debt on 31 December 2018 stood at $13 million.


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