AGEM Index

On pace with the broader markets, the AGEM Index closed the month of December 2009 at 106.32, up 1.59 points or 1.52 percent from the previous month. During the month, one global gaming supplier, Konami, contributed a full point to the index while the balance of the sector contributed modest movement to the index. While the S&P 500 gained 1.78 percent over the same period, both markets ended the year with significant gains as they rebounded from low points reached nearly 12 months ago. The AGEM Index outperformed the S&P 500 for the year, posting a gain of 33 percent, while the broader market ended the year up nearly 27.8 percent.

Selected positive contributors to the index during the month include: (1) Konami (KNM) with the only significant contribution, adding 1.13 points to the index based on a 9.02-percent increase in its stock price, and (2) WMS Industries (WMS) contributing 0.35 points with a 2.88-percent increase in its stock performance.

Selected negative contributors to the index include: (1) International Game Technology (IGT) with its stock price dropping a negligible 0.64 percent, contributing -0.19 points to the index, and (2) Aristocrat Technologies (ATI) posting -0.18 points to the index with a 0.25-percent decline in its stock valuation.
Compared to the prior year, the stocks of global gaming suppliers have generally improved as the latest recessionary cycle finds a bottom, gratuitous costs cut were realized and balance sheet concerns were eliminated for some. However, while the last six months of the year can be regarded as a great turnaround, general concerns surrounding the gaming environment hang over the sector. Consumer spending, willingness to travel and capital expenditures into new and existing markets are just a few items that will drive the index in 2010.

Union Gaming Group Analysis
The AGEM index continued its recovery in December, largely helped by broader financial market gains yet supported by a combination of gaming-related events during the month that have implications for gaming equipment suppliers. Relatively favorable dynamics in the two largest gaming markets, Las Vegas and Macau, drove sentiment during the period. This included continued visitation gains in Vegas during the fourth quarter in conjunction with lower room rate declines. Ultimately, this suggests 2010 could mark a recovery that would lead to an ultimate boost in sorely needed casino capital expenditure budgets targeting gaming equipment. Macau’s November results, reported in December, demonstrated significant strength surrounding Chinese President Hu Jintao’s visit to celebrate the 10th anniversary of Macau’s return to China and new leadership taking office.

During the month, Penn National received final approval for its Kansas joint venture, while Boot Hill in Kansas was the first casino to open in the state. The industry will enjoy the benefit of table approvals at Charlestown in West Virginia, e-tables going live in Florida racinos, Maryland’s largest VLT parlor finally getting approval at Arundel Mills, and further momentum for live table games in Pennsylvania. These expansion dynamics were offset by an indefinite opening delay at Ocean Downs in Maryland along with the Baltimore City group leaving the process. Protection from smoking bans in Atlantic City and Detroit supported positive sentiment during the month as well. On the company front, WMS reiterated financial guidance during December, a function of better visibility following November’s G2E along with maniacal expense management, and MGM’s CityCenter finally opened with a highly visible server-based gaming install that appears to be functioning well and has been well received.

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