A strong beat across the board
Aristocrat Leisure (ALL) reported 1H18 revenue of A$1,640.9m which was up 33.6% on the previous corresponding period (pcp) while EBITA of A$551.9m was up 27.4% on the pcp and ahead of our forecasts of A$1,598m and A$502m respectively. The EBITA beat was particularly good given the increase in Design & Development expenses seen during the half, while lower corporate costs helped.
NPATA of A$361.5 was up 32.5% while EPSA of 56.6 cents per share rose 32.6% compared to our forecasts of A$322m and 52 cents per share.
The company announced an interim dividend of 19 cents per share (fully franked) which was in-line with our forecast and up 35.7% on the pcp.
Well positioned heading into 2H18 and beyond
We continue to see upside for both outright machine sales and gaming operations due to the current strength of the ALL game and hardware library over the remainder of FY18 and beyond. With further successful titles (Liberty Link) anticipated and adjacent market opportunities being targeted, the company is very well placed to maintain its strong market positions.
The Digital segment performance was very good and should alleviate market concerns with the recently acquired Big Fish seeing solid growth across all metrics. Pro-forma EBITDA growth of Plarium and Big Fish also surprised positively.
Changes to forecasts
Given the strong momentum in the land based divisions and following a stronger than forecast digital result we have made upgrades to our forecasts. Our EPS forecasts increase by 7.3% (121cps) in FY18, 6.0% (142cps) in FY19 and 5.8% (160cps) in FY20. Further detail is available in the ALL research note (Morgans clients can login to view).
Following earnings changes we have increased our share price target (Morgans clients can login to view). Our target price is based on a blended approach, which incorporates a PE-based valuation and a Discounted Cash Flow (DCF) valuation.
Key risks include increased regulation and competition, slowing customer demand, acquisition integration and the AUS/USD exchange rate.
We retain our Add recommendation.
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