The year 2012 was filled with calamatious headlines and highly volatile share prices – but overcoming the odds a small subset of stocks in the tourism and leisure sector soared some 25% to 420% compared to just 13% for the underlying index, the S&P ASX 200 index (XJO). Stocks like Ainsworth Game Technology and Jumbo Interactive are on the radar of brokers.
Indeed, the Consumer Discretionary Index, the XDJ, actually outperformed the XJO with a year over year increase of 16%. Aren’t consumer discretionary stocks supposed to suffer in the face of weak consumer confidence?
We’ve highlighted 7 of the best, with impressive year over year share price increases. See the table at the bottom of the article for a comparison of the seven stocks.
Crown Limited (CWN) is a casino operator with current locations in Melbourne and Perth as well as a joint venture casino in Macau. The company also operates a VIP casino club in the UK. Currently Crown is planning a major expansion of the Perth facility and is negotiating with state government officials for a casino in Sydney. The company’s August 2012 Full Year Earnings Release showed an increase in total revenue from $2,400.3 million in 2011 to $2,792.7 million in 2012. Net Profit after Tax rose to $513.3 million from $335.9 million in 2011.
Most brokers are bullish on Crown, with only Credit Suisse and CIMB Securities having NEUTRAL or HOLD ratings. All others have BUY, OVERWEIGHT, and OUTPERFORM recommendations. Crown has a decided advantage with its regulatory monopoly licensing. However, expansion comes at high cost and great risk. Attempts to break into the US market ended up in costly write downs. The company’s long term debt rose from $1.049.7 million in 2011 to $1,665.6 million in 2012. Gearing rose from 32.8% to 50.2%. Here is the company’s year over year price chart:
Tatts Group Ltd (TTS) is in the gaming services business in Australia. The company operates regulated lotteries throughout the country as well as wagering and sports betting operations in Queensland, South Australia, the Northern Territory and Tasmania. Tatts also operates licensing gaming machines and provides a range of services such as repair to other industry players. In addition, the company has a slot machine and internet gaming operation in the UK.
The company’s Full Year Results from June 2012 showed a respectable 6.3% increase in revenue and a 15.9% increase in NPAT. Since that time Tatts has lost a gaming license in Victoria and is pursuing legal action against the state government to recoup lost revenue. The UK business is weak and the analyst community is moderately bearish on the company. Tatts recently entered into a 40 year agreement for the rights to keno and lottery business in South Australia at a cost that some analysts found too high. However, given that growth in the mature Australian gaming market is hard to find, analysts like the long term prospects of the deal. Right now Citi has a SELL recommendation on Tatts, with Credit Suisse, Macquarie, and JP Morgan Chase with UNDERPERFORM ratings. Deutsche Bank, CIMB Securities and UBS all have HOLD or NEUTRAL recommendations. BA-Merrill Lynch is the only house with a BUY rating on the stock, with medium risk. Here is a one year chart for TTTS:
Aristocrat Leisure (ALL) provides machines and software to the gaming industry around the world. It operates in over 90 countries and has dominant market share in Australia, Macau and Singapore. The company’s product line is broadly diversified with stand-alone gaming machines, online casino games, interactive terminals for lotteries, gaming management software systems and parts and repair services.
The company released a 9 month earnings report on 30 September 2012 with Full Year Results to be released in late January 2013. The nine month year over year period showed a 29.7% increase in revenue and an impressive 128.6% increase in NPAT. Shareholders were rewarded with a 140% increase in dividends per share, from $0.025 to $0.06.
Despite the stellar results for the period, analyst opinion is decidedly mixed on ALL. On 29 November 2012 an analyst at Credit Suisse upgraded the company from UNDERPERFORM to OUTPERFORM and raised the price target from $2.60 to $3.50. On 10 December 2012 CIMB Securities downgraded Aristocrat to NEUTRAL from OUTPERFORM without lowering the price target.
Share price performance indicates that this is not a stock for the faint hearted. Of the eight companies in our table, ALL has seen the most volatility. Here is the year over year chart:
Ainsworth Game Technology (AGI) is one of the two most impressive stocks in our table, with an astounding 420% year over year increase. Stocks like AGI always raise the concern of running up too far too fast. Certainly an increase from $0.49 a share to $2.87 a share makes one wonder if this stock still has room to run.
Right now Ainsworth has major analyst coverage from only two firms – Macquarie and BA-Merrill Lynch. Analysts at both houses are bullish on the stock, with an OUTPEFORM and a BUY recommendation. Analysts liked Ainsworth’s recently announced profit guidance increase from an earlier forecast of a healthy 25% to 49%. The company has strong domestic penetration and is ready to hit the US market with a recent licensing approval decision in the state of Ohio, allowing Ainsworth to sell or lease its equipment to any casino facility in that state. BA-Merrill Lynch is reaffirming its previous conclusion that AIG is one of their favorite picks.
Ainsworth makes gaming machines from design to installation to service and support. The company’s forward guidance is especially impressive in light of its most recent earnings release. Full Year results for 2012 released in November showed a 54% revenue increase and a resultant 118% increase in earnings per share. AGI has jumped from penny stock status in one short year. This is one to watch. Here is the company’s year over year price chart:
Reef Casino Trust (RCT) owns and operates a single casino in North Queensland. It is a good example of the risks involved in investing in companies with such narrow focus. Half Year Results released in August showed both profit and revenue declines. A major reason was the six month closure of a major gaming floor for renovation. Company management also cited slowing local tourism but expressed optimism for growth in the China tourist market.
Given those results and a single casino operation, how can the share price be up 30%? RCT is the only stock in our table with a P/E under 10. Its P/E is an attractive 5.05. In addition it has the highest dividend yield at 8.5%. The sector average is 4.3% and Tatts Group is the only stock in the table that comes close to RCT with a yield of 6%. For income investors, RCT may merit a place on your watch list. Here is the company’s one year price chart:
Jumbo Interactive (JIN) is the other star performer in our table. Like Ainsworth, Jumbo shed penny stock status with its impressive move from $0.36 a share to the current $2.76. The company is in the online lottery business and its Oz Lotteries website here in Australia is booming. The company states its lottery sales have increased four-fold over the past four years, hitting a record $6.7 million in NPAT from revenue of $100 million in 2012.
This company has no analyst coverage yet astute investors spotted Jumbo’s technological prowess and aggressive expansion plans and sent the share price skyrocketing. Jumbo signed an agreement to provide online lottery games for the websites of Tatts group.
It is the US market, however, that offers myriad lucrative opportunities. On 28 November Jumbo entered into a 50/50 joint venture with US based Retail Gaming Solutions. The arrangement calls for Jumbo to offer its Internet and mobile gaming software to US lottery retailers.
On the heels of that announcement, Jumbo thrilled its investors yet again with the news it had signed a long-term exclusive agreement with US-based Sorteo Games for the rights to introduce its Internet and Mobile to two Mexican national lottery systems. In addition, Jumbo has already invested $2 million into Sorteo in exchange for a 6% interest in the company with an option for another $3 million. The goal is additional expansion into markets across Latin America. Here is Jumbo’s year over year chart:
Ebet Limited (EBT) is the smallest gaming and gaming software provider in our table. The company is also in the wagering segment, focussing on emerging markets. Its business divisions have more than 800 customers. Ebet claims to have around 55,000 gaming machines in Australia with additional business interests in New Zealand, Malaysia, Singapore, Philippines, Vietnam, Korea, New Caledonia, Canada and the USA.
Ebet rebounded from a negative $5.9 million NPAT in 2011 to a positive net profit of $1.3 million in 2012. Revenues increased from $32.6 million to $41 million. The impressive rise in share price was interrupted by a 15 for 1 share consolidation in November of 2012 but has resumed its upward momentum. The company recently sold its interest in a US-based online business and has seen both the CEO and CFO replaced in the last year.
Since EBT has no apparent analyst coverage and there are more promising choices in our table, this stock merits the attention of only those with extremely high risk tolerance. Here’s the company’s one year share price chart:
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