AGEM Index

By the end of February 2010, there was little movement in the AGEM Index, as the net impact of gains and losses for various global gaming suppliers remained relatively unchanged from the previous month. The index fell modestly by 0.60 points, or 0.6 percent, to close at 102.28. Earnings reports for the fourth quarter of 2009 are underway and the AGEM Index, similar to the broader equities markets, is reflecting investor reaction—one of caution. Markets remain down for the calendar year, but up significantly from the lows reached 12 months ago. On a year‐over‐year basis, the AGEM Index and the S&P 500 are up 82.3 percent and 50.4 percent, respectively. Investors have remained cautious as consumer confidence and the labor market continue to exhibit weakness, and debt in Greece raised concerns within the eurozone and its ability to recover from the latest downturn.

Selected positive contributors to the index during the month include: (1) Konami (KNM) with the largest contribution, adding 1.32 points to the index based on a 10.01‐percent increase in its stock price and (2) Aristocrat Technologies (ALL) contributing 0.54 points with a 6.55‐percent increase in its stock performance.

Selected negative contributors to the index include: (1) Lottomatica (LTO) with its stock price falling 7.87 percent, contributing ‐1.81 points to the index and (2) International Game Technology (IGT) posting ‐1.18 points to the index with a 4.31‐percent decline in its stock valuation.

Fears of a double‐dip recession continue with apprehension among investors, as a scenario of jobless recovery may become reality. Additionally, housing, consumer confidence and spending remain fragile creating a longer road to recovery. Finally, gaming expansions in key jurisdictions remain a bright spot in an otherwise challenging environment.

Union Gaming Group Analysis
Gaming activity at the state level was largely mixed. Wynn signed on the dotted line to take over the Foxwoods project in downtown Philadelphia; Delaware passed its table games bill as expected; a bill to expand gaming at six locations (15,000 slots) in New Hampshire was filed; Minnesota is looking at approving slots at the two Twin Cities race tracks; the Kansas Lottery came to an agreement with the Chisholm Creek partners; New York finally settled on a manager for the Aqueduct license with a potential opening date early next year; and a new casino ballot measure was approved in Maine that voters will decide on in November.

On the other hand, a gaming bill was filed in Hawaii but was immediately shot down; and Kentucky seems to have declined to look at gaming expansion during 2010. At the international level, IGT decided to exit its Japanese pachislot business which had been a drag on earnings in recent years.

While casino operators expressed caution with respect to trends in Las Vegas, which investors extrapolated to mean minimal capex budgets for new slot machines, we continue to see improvements across most measureable metrics in Las Vegas. Visitation has posted positive growth for four consecutive months, gaming revenues have increased (largely on the strength of baccarat) and our sources have indicated to us that the Chinese New Year was very strong.

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