AGEM Index

While broader economic indicators continue to show signs of weakness amid fears of a looming “double-dip” recession, the AGEM Index continues to outperform the broader equities markets. Significant stock declines did impact a handful of AGEM Index members’ stock price, 11 of them falling by double digits. However, with the conclusion of second quarter earnings season, improving trends in travel and tourism continue, while the majority of gaming operators appear to have put the worst behind them, and those with a presence in Asia are maintaining their upward momentum going forward.

The market witnessed the AGEM Index decline slightly by 0.09 points, or 0.1 percent, ending the month with a composite score of 113.98. While the majority of members held the index back, those declines were offset by gains at Konami Gaming, which witnessed its stock price flourish. Selected positive contributors to the index during the month included the following:

• Konami (KNM) recorded a 42.46-percent increase in its stock price during the past month, adding 14.07 points to the index.
• Multimedia Games (MGAM) contributed 0.12 points to the index, sourced to a 13.59-percent gain in its stock valuation.

Selected negative contributors to the index included:

• International Game Technology (IGT) contributed negative 5.26 points to the index with its stock valuation falling 17.91 percent.
• Lottomatica (LTO) reported a 20.26-percent decline in its stock price, removing 3.51 points from the index.

For comparison purposes, the broader markets in the United States continued their trend downward during the month, largely attributable to macroeconomic concerns. For the month, the Dow Jones Industrial Average declined nearly 4.4 percent, Standard & Poor’s 500 Index fell 5.7 percent, and the NASDAQ Composite slipped more than 6.4 percent. Losses sustained in the broader markets during August have erased all gains for the year, yet the AGEM Index is up more than 8 percent through the first eight months of 2011.

From bill validators to table game designers, vendors large and small play a pivotal role in the operations of a gaming industry where U.S. commercial casinos generate $35 billion in annual revenues. A peek inside the second quarter earnings of selected gaming operators provides a clearer assessment of today’s environment and insight into the potential for gaming equipment manufacturers to recover from a slow down in development and extended replacement cycle timelines.

Caesars Entertainment, the largest U.S. operator (measured by revenue), witnessed its net revenues rise a slight 0.4 percent, to $2.2 billion during the second quarter of 2011. Additionally, a key performance indicator, EBITDA, was up 15.2 percent over the previous year, reaching $541.8 million. The gains were largely witnessed from the Las Vegas market, where the company plans to finish its Octavius Tower near the end of the year and is moving forward with the planning of its $500 million LINQ project, an entertainment district along the resort corridor near Imperial Palace and the Flamingo Las Vegas. It is also important to note that the performance of Caesars’ Las Vegas properties reported the best quarterly gains in three years. Domestic expansions are also on the horizon, including Ohio and potentially Massachusetts, if the regulatory environment allows.

Reporting improvements at both its Macau and Las Vegas properties, Wynn Resorts recorded a 32.4 percent increase in net revenues over the same period a year ago (Q2 2010). The bulk of the company’s revenue continues to come from its Macau property where adjusted EBITDA increased 36.7 percent from a year ago, but adjusted EBITDA in Las Vegas rose more 103.7 percent. Wynn’s balance sheet provides flexibility for future investments.

Properties across the Las Vegas Sands portfolio also recorded substantial increases in revenue and EBITDA. Overall, the company reported a net revenue increase of 47.1 percent, to $2.4 billion. The Marina Bay Sands property in Singapore, which opened last year, provided 44.5 percent of the company’s second quarter reported EBITDA. Its Macau properties reported a record adjusted EBITDA of $391.6 million and at its headquarters in Las Vegas, both the Venetian and Palazzo contributed $92.9 million in EBITDA, a 40.8-percent increase compared to the second quarter of 2010. The increase was sourced to additional group and convention activity. Continued investments in China provide additional supplier opportunities.

The performance of MGM Resorts International was also positive, reporting an overall EBITDA increase of 47.1 percent over the same period one year ago. Although results are largely attributable to its Macau operations and the company’s acquisition of a controlling interest in MGM China during the second quarter, key indicators in its Las Vegas properties also reported increases. Excluding CityCenter, which is not wholly owned by MGM Resorts International, net revenues for the second quarter increased 5 percent, to $1.2 billion. At $271 million, adjusted EBITDA increased a larger 11.2 percent from the year before.

Overall improvements in the gaming industry seem to be sustained, particularly for larger multinational gaming operators with interests abroad. With leisure and hospitality trends reporting increased stabilization, it is likely the worst remains in the rearview mirror. As a result, gaming equipment manufacturers may begin to benefit from an improving industry environment, as long as macroeconomic trends support their newfound footing.

Leave a Comment