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8/10/2019 Ainsworth Game Technology Presentation
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Optimum Capital Management Pty Ltd
Investment Thesis for
Ainsworth Game Technology
December 2014Prepared by Heinrich Jacobs
Managing Director & Chief Investment Officer
w: optimum-capital.com.aue: info@optimum-capital.com.au
8/10/2019 Ainsworth Game Technology Presentation
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Disclaimer
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Table of Contents
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Business Overview
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Ainsworth Game Technology (AGI)
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*Share price at time of writing
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Products
AGI sells a wide assortment of gaming machines tailored for global markets
Market Australia Americas Europe Asia
No ofproducts 35 32 27 7
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$58.5m
$31.9m
$1.0m
$4.1m
$143.3m
$5.3m
AGI is growing its International operations and is establishing a well-diversified business with strategic relationships being developed overseas
Diverse Footprint
Source: Ainsworth’s 2014 Financial Report
Revenue by geography
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History of AGI
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Intrinsic Value Rising
Has the share price decline been warranted? The Intrinsic Value (Blue Line) ofthe company has steadily been rising and the share price is trading below
Intrinsic Value
*Rising IntrinsicValue
Current share price mostlydriven by marketshortsightedness
Mis-pricing opportunity
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8/10/2019 Ainsworth Game Technology Presentation
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Ainsworth Historical Financial Performance
Management has a strong focus on operational excellence through productinnovation, capital discipline and strong execution. As a result, the Company’s
profitability has increased.
Source: Capital IQ
Ainsworth’s Historical EBITDA Performance
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Ainsworth’s Historical & Predicted Earnings Per Share
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High Returns on Capital
Source: Capital IQ
(15%)
(8%)
0%
8%
15%
23%
30%
2009 2010 2011 2012 2013 2014
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Improving Margins
Source: Capital IQ
-17.5
0
17.5
35
52.5
70
2009 2010 2011 2012 2013 2014
EBITDA Margin % Gross Margin %
%
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Valuation
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Which would you rather own?
1. A 1 year Term Deposit at a 3.25% yield
2. A 5 year Term Deposit at a 4.00% yield
3. Shares in a quality company with an initial 9%, 8.6%, oreven 8.2% earnings yield and growing over time
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What’s the pay cheque?
Share Price Current Earnings Per Share (c) Earnings Yield (%)
$2.10 0.19 9.04
$2.20 0.19 8.63
$2.30 0.19 8.26
With the share price at current levels an attractive earnings and dividend yield
is being offered to investors
Share Price Current Dividends Per Share (c) Dividend Yield (%)
$2.10 0.10 4.76
$2.20 0.10 4.54
$2.30 0.10 4.34
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Value of AGI
Norm. Earnings - Maint. Capex 50.06
WACC 9%
Cash & Equivalents 71.929
Interest Bearing Debt 0.463Shares Outstanding 322
Total Equity 235
Intangibles 4.701
Earnings Value Power (EVP) $1.95
Tangible Book Value (TBV) 0.72
EVP + TBV $2.67Current Share Price $2.10
Margin of Safety +27.00%
• Combining the earnings power and tangible assets of AGI you have a company conservatively valuedat $2.67 per share and trading at a 27% discount.
Our conservative NO growth valuation is based on the current free cash flow plustangible book value of the company. Since future growth is excluded from the
analysis, only maintenance capital expenditures are subtracted from after-tax EBITand growth is ignored
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Target Valuation
But what about growth? Ainsworth is a growing company so we should consider areasonable multiple on EBITDA to arrive at our implied share price valuation
EV/EBITDA 11x 12x 13x 14x
EBITDA(m) 85 85 85 85
Implied EnterpriseValue(m)
935 1,020 1,105 1,190
Cash(m) 72 72 72 72
Implied EquityValue(m)
1,007 1,092 1,177 1,262
Shares Outstanding(m) 322 322 322 322
Implied Share Price $3.12 $3.39 $3.65 $3.91
Valuation Multiples
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Risks
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Conclusion
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Get In Contact With Us
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