This document provides an investment thesis for Ainsworth Game Technology prepared by Heinrich Jacobs. It outlines AGI's business overview including its history, financial performance, valuation, and risks. AGI has significant growth opportunities internationally but its shares currently trade below intrinsic value, providing an attractive investment. The summary concludes that AGI offers an attractive equity and dividend yield that could grow over time based on the company's earnings power.

1. Optimum Capital Management Pty Ltd
Investment Thesis for
Ainsworth Game Technology
December 2014
Prepared by Heinrich Jacobs
Managing Director & Chief Investment Officer
w: optimum-capital.com.au
e: info@optimum-capital.com.au

2. Disclaimer
Op#mum
Capital
Management
Pty
Ltd
ABN
60
154
164
020
is
the
Trustee
and
Investment
Manager
of
the
Op#mum
Australian
Equi#es
Value
Fund
(“the
Fund”)
ABN
38
923
100
447.
The
Trustee
is
a
corporate
authorised
representa#ve
(No.
467287)
of
Lanterne
Strategic
Investors
Pty
Ltd
(ABN
49
098
472
587,
AFSL
238198).
This
presenta#on
is
not
a
recommenda#on
to
invest
in
the
Fund
and
may
not
include
all
of
the
informa#on
that
a
prospec#ve
investor
needs
to
make
an
investment
decision.
Op#mum
Capital
Management
does
not
take
into
account
the
individual
circumstances
of
any
prospec#ve
investor,
nor
does
it
give
any
advice
whatsoever
but
to
the
extent
that
it
does,
it
cons#tutes
only
general
advice
and
not
personal
advice.
Accordingly,
prospec#ve
investors
should
make
their
own
independent
enquiries
and
obtain
professional
legal,
financial,
tax
and
accoun#ng
advice
before
making
an
investment
decision.
Disclosure
-­‐
The
author
is
a
shareholder
in
Ainsworth
Game
Technology

3. Table of Contents
• Business
Overview
• History
of
Ainsworth
• Valua#on
• Risks
• Conclusion

4. Business Overview

5. Ainsworth Game Technology (AGI)
ASX
Code:
AGI
Share
Price:
$2.10*
Market
Cap:
$750m
Enterprise
Value:
$695m
Founded
in
1995,
AGI
has
grown
into
one
of
Australia’s
most
dominant
gaming
machine
operators
• $244m
of
sales
in
2014
(+23%
on
prior
year)
• $89m
EBITDA
in
2014
(+20%
on
prior
year)
• $62m
Net
profit
in
2014
(+19%
on
prior
year)
• $72m
Net
Cash
posi#on
with
minimal
debt
Unique
Jurisdic@onal
Licenses
• AGI
has
163
jurisdic#onal
licenses
globally
and
secured
31
new
gaming
licences
in
2014
including
Mississippi,
Missouri,
Arizona,
and
Alderney
Interna@onal
Expansion
• Interna#onal
revenue
of
$100m
(+37%
on
prior
year)
and
strong
growth
in
key
market
of
the
Americas.
Interna#onal
revenue
now
accounts
for
41%
of
total
company
revenue.
*Share price at time of writing
ADrac@ve
Yield
&
Return
on
Equity
• Earnings
yield
between
8-­‐9%
• Dividend
yield
between
4-­‐5%
• Return
on
equity
~
25%

6. Products
AGI sells a wide assortment of gaming machines tailored for global markets
Market Australia Americas Europe Asia
No of
products 35 32 27 7

7. $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

8. History of AGI

9. Five Year Share Price Performance
AGI was trading at approximately $4.45 per share in March 2014 but has since
traded down primarily due to softer than expected earnings in FY14
$4.45
Recent
price:
$2.25
Source: Yahoo Finance

10. Intrinsic Value Rising
Has the share price decline been warranted? The Intrinsic Value (Blue Line) of
the company has steadily been rising and the share price is trading below
Intrinsic Value
*Rising Intrinsic
Value
Current share price mostly
driven by market
shortsightedness
Mis-pricing opportunity

11. Ainsworth Historical Financial Performance
AGI’s strong domestic operations and international expansion is driving
significant revenue gains, with more upside potential to come
Source: Capital IQ
69#
98#
151#
198#
244#
256#
295#
0#
50#
100#
150#
200#
250#
300#
350#
FY#10# FY#11# FY#12# FY#13# FY#14# FY#15# FY#16#
$"millions"
Ainsworth’s Historical & Predicted Revenue Growth

12. Ainsworth Historical Financial Performance
Management has a strong focus on operational excellence through product
innovation, capital discipline and strong execution. As a result, the Company’s
profitability has increased.
Source: Capital IQ
Ainsworth’s Historical EBITDA Performance
7"
26"
51"
67"
85"
0"
10"
20"
30"
40"
50"
60"
70"
80"
90"
100"
FY"10" FY"11" FY"12" FY"13" FY"14"
$"millions"
!(0.01)!!!
!0.08!!
!0.22!!
!0.16!!
!0.19!! !0.2!!
!0.23!!
!(0.05)!!!
!0!!
!0.05!!
!0.1!!
!0.15!!
!0.2!!
!0.25!!
!0.3!!
FY!10! FY!11! FY!12! FY!13! FY!14! FY!15! FY!16!
cents&per&share&
Ainsworth’s Historical & Predicted Earnings Per Share

13. High Returns on Capital
Source: Capital IQ
(15%)
(8%)
0%
8%
15%
23%
30%
2009 2010 2011 2012 2013 2014
22%21%22%
16%
4%
-9%

14. Improving Margins
Source: Capital IQ
-17.5
0
17.5
35
52.5
70
2009 2010 2011 2012 2013 2014
EBITDA Margin % Gross Margin %
%

15. Valuation

16. 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%, or
even 8.2% earnings yield and growing over time

17. 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

18. How does it compare?
On a comparable basis with rival Aristocrat, Ainsworth looks cheap on several
fronts
Comparables Ainsworth Aristocrat
Market Cap ($m) 765 4,261
Enterprise Value (EV) 695 4,075
EBITDA ($m) 85 198.8
Multiple 8.17
20.5 x
Price/Earnings
11.2 x 23 x
Return on Equity (3yr Avg) 30.5 22.6

19. Value of AGI
Norm. Earnings - Maint. Capex 50.06
WACC 9%
Cash & Equivalents 71.929
Interest Bearing Debt 0.463
Shares Outstanding 322
Total Equity 235
Intangibles 4.701
Earnings Value Power (EVP) $1.95
Tangible Book Value (TBV) 0.72
EVP + TBV $2.67
Current Share Price $2.10
Margin of Safety +27.00%
• Combining the earnings power and tangible assets of AGI you have a company conservatively valued
at $2.67 per share and trading at a 27% discount.
Our conservative NO growth valuation is based on the current free cash flow plus
tangible book value of the company. Since future growth is excluded from the
analysis, only maintenance capital expenditures are subtracted from after-tax EBIT
and growth is ignored

20. Target Valuation
But what about growth? Ainsworth is a growing company so we should consider a
reasonable multiple on EBITDA to arrive at our implied share price valuation
EV/EBITDA 11x 12x 13x 14x
EBITDA(m) 85 85 85 85
Implied Enterprise
Value(m)
935 1,020 1,105 1,190
Cash(m) 72 72 72 72
Implied Equity
Value(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

21. Risks

22. What’s the Downside?
There are a number of bear points to consider as Ainsworth operates in a
competitive and regulated industry, and across geographies
• External
factors
such
as
economic
condi#ons
and
credit
markets
• AGI’s
main
customers
(casino’s
&
clubs)
may
experience
a
slow
down
and
as
a
result
purchase
less
of
AGI’s
products
• Consumer
preferences
may
change
and
AGI’s
gaming
machines
may
lose
popularity
• AGI’s
growth
in
new
Interna#onal
markets
may
slow
or
the
company
may
fail
to
obtain
licensing
and
approval’s

23. Conclusion
• At
current
price’s,
AGI
offers
a
very
aDrac@ve
equity
and
dividend
yield
that
could
grow
over
@me
-­‐ AGI
has
a
~8-­‐9%
current
earnings
yield
and
~4-­‐5%
dividend
yield
• The
current
share
price
is
not
factoring
in
the
earnings
power
of
the
company
and
the
securi@es
are
mis-­‐priced
-­‐
Net
Cash
of
$72m
on
the
balance
sheet
with
minimal
debt
• High
quality
business
with
good
track
record
of
opera@onal
and
financial
performance
• Interna@onal
expansion
to
deliver
ongoing
growth
opportuni@es
• AGI
has
a
high
quality
porRolio
of
gaming
products
in
an
industry
with
high
barrier
to
entry
• The
founder
Leonard
Ainsworth
is
a
pioneer
of
the
industry
and
holds
a
majority
ownership
stake
in
the
company
Get In Contact With Us
If
you
would
like
to
discuss
this
presenta#on
or
find
out
more
informa#on
about
our
Australian
Equi#es
Value
Fund
(applica@ons
now
open)
please
email
us
at
info@op#mum-­‐capital.com.au
Thank
you