Investment Highlights
i) EPS growth profile set to improve – AGI has delivered flat growth in recent years with strong growth in international markets being offset by domestic weakness. With the domestic decline slowing and the mix shifting toward the fast growing international markets (70%+ in FY17), we believe there will be a return to strong EPS growth in FY17. This will be augmented by the acquisition of Nova Technologies contributing for a full year in FY17. ii) International to drive growth – International revenue growth was up 57% in 1H16 driven by growth in the Americas. North American sales were up 42% and South American sales were up 64%. We are forecasting a similar level of growth in these markets in 2H16 and FY17. iii) Novomatic adds optionality – Novomatic’s bid to control 53% of the company, if successful, is expected to add materially to AGI’s earnings growth profile. Novomatic will drive sales into European markets, cost synergies and significant IP through a sharing of its game library. The benefits AGI has outlined would be 28% EPS accretive in FY18.
Potential Catalysts
i) Continued penetration of the North American markets. ii) Evidence of domestic ship share stablising. iii) Novomatic receiving regulatory approval for the acquisition of a controlling stake in AGI, which recently received shareholder approval.
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