Aristocrat Leisure: Opportunity knocks

About the author:

James Lawrence
Author name:
By James Lawrence
Job title:
Analyst
Date posted:
22 October 2018, 11:06 AM
Sectors Covered:
Gaming, Professional Services, Fixed Interest

Expecting a strong result

Aristocrat Leisure (ALL) is due to report its FY18 result on the 29th of November, which will include partial contributions from the Big Fish and Plarium acquisitions undertaken during the year. 

We forecast revenue of A$3,616m, up 47% and in-line with Factset consensus expectations. We forecast NPATA to rise 41% to A$767m (consensus at A$734m) and expect a final dividend of 30 cents per share to be declared.

Well positioned heading into FY19

Strong performances from Lightning Link, Dragon Links and Buffalo Grand, which are all still running at multiples of floor averages, should result in increased demand from customers and see Aristocrat increase ship share in the participation market in North America. Additionally, the release of Buffalo Diamond and other new premium game releases including Billions, Madonna and West World will complement the successful Game of Thrones game which continues to perform well. 

The launch of Dollar Storm late in FY19 should also drive strong customer demand. We also believe ALL is well positioned in the social casino and strategy/RGP/casual gaming markets following new game releases and a strong existing library of titles.

Changes to forecasts

We have taken the opportunity to increase our Design and Development (D&D) expenditure over the next few years as Aristocrat seeks to be a market leader in the segments in which it competes. In addition to these changes we have tweaked some divisional forecasts and reduced our FY19+ AUD/USD exhange rate forecasts to A$0.74 (from A$0.77).

As a result we increase our earnings per share by 0.9% in FY18, 2.6% in FY19 and 2.8% in FY20.

Investment view

The recent pull-back in high PE stocks and the gaming sector more broadly has created an excellent buying opportunity. Following changes to our forecasts we have increased our share price target (Morgans clients can login to view). Key risks include increased regulation and competition, slowing customer demand, acquisition integration and the AUD/USD exchange rate.

Aristocrat Leisure (ALL) is our key pick in the sector. We retain our Add recommendation.

More information

Morgans clients can login to view our detailed report and increased share price target for Aristocrat Leisure (ALL). Alternatively, please contact your nearest Morgans office for access.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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