Aristocrat Leisure: Model update - Including Playtech in estimates

About the author:

Alexander Mees
Author name:
By Alexander Mees
Job title:
Co-Head of Research and Senior Analyst
Date posted:
23 October 2021, 11:00 AM
Sectors Covered:
Gaming and Retail

  • On 18 October, Aristocrat Leisure (ASX:ALL) announced the proposed acquisition of UK-listed real money gaming business Playtech (PTEC-GB).
  • We have now updated our model to include PTEC in our estimates.
  • Our EPSA estimate for FY23F, the first full year of ownership, increases by 7%, which is consistent with ALL’s guidance of mid to high single-digit accretion.

Forecast and valuation update

Our EBITA estimates increase by 2% to $1.56bn in FY22F and 17% to $2.02bn in FY23. Our NPATA estimate is flat at $1.08bn in FY22F and increases by 13% to $1.39bn in FY23.

Our EPSA estimate for FY22 reduces by 4% to 162c, reflecting the dilution from 31m new shares for 10 months of the year, compared to only 3 months’ earnings contribution from the acquisition. Our EPSA estimate for FY23 increases by 7% to 207c.

There is little change to our 12-month target price, (login to view). Our new target is derived from a blend of DCF and EV/EBITA methods based on our updated estimates.

Our previous target was derived from a blend of DCF and EV/EBITA methods based on our pre-acquisition estimates, with a premium applied to take account of the value accretion from the acquisition.

Key assumptions

We have assumed the acquisition completes on 30 June 2022.

We have based our growth and margin forecasts for PTEC on consensus estimates prior to the announcement of the deal.

We have assumed ALL’s planned exit of certain jurisdictions that do not meet its risk profile leads to the removal of A$100m in annualised EBITDA, which compares to guidance of €50-80m (A$77-123m).

Investment view

We reiterate our ADD rating. In our opinion, the acquisition of PTEC gives ALL the opportunity to get to scale quickly in a market segment forecast to grow at a double-digit rate over the next five years.

We expect the strong sector growth to be driven by a North America market growing at a CAGR of close to 50% as more US states liberalise and allow online iGaming and online sports betting.


Primary risks are around the execution of the transaction and integration of the acquisition of PTEC.

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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.

Solid top-line outcome: BAP’s 1Q22 revenue was flat on the pcp, an extremely resilient result given the extent of lockdowns in the period (~70% of stores impacted) and the strength of the pcp (cycling 27% growth). Composition comprised: Trade +2%; NZ -10%; Retail -12%; and Specialist Wholesale +7%. Overall, BAP stated that non-lockdown areas are outperforming expectations. ▪ 1Q22 trade & retail: Trade/Burson revenue was up +2% on the pcp (LFL sales - 1%; cycling 8% pcp); NZ/BNT revenue was down -10% (LFL sales -15%; cycling +4%); and Retail/Autobarn revenue was down -12% (LFL sales -16%; cycling +36%). Within the Retail segment, online sales were +80% on the pcp. Stores percentages impacted by lockdown were: Trade 70%; NZ 100%; and Retail 50%. ▪ Specialist segment results: Specialist wholesale revenue is up 7% on pcp, with Auto electrical/Truckline divisions ‘performing strongly’; and WANO underperforming. ▪ GM pressure expected to be temporary: BAP stated GM was stable across Wholesale and NZ (45% of FY21 revenue); and down ~50bps Trade and Retail (~55% of FY21 revenue), driven by promotional and online pricing in lockdown areas (we assume no margin pressure witnessed in non-lockdown areas). BAP expect margins to revert once lockdowns ease. ▪ The cost base has increased vs pcp, a function of duplicated DC costs (commencement of new VIC DC), and higher group and team member support (covid related) costs. BAP noted FY22 store rollouts and refurbs are on track.

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