Aristocrat Leisure’s game plan is unchanged and intact, but the FY22 result contained small glitches that irked the market. Financially, ALL is ready to pursue more acquisitions as part of the ‘build and buy’ strategy to grow the online real money gambling business.
ALL’s FY22 underlying net profit of $1,099.3 million was 27.1% ahead of last year on a revenue increase of 17.7%. A final dividend of 26cps (fully franked) together with the $500 million buyback ($170 million to go) returned $660 million to shareholders in the year.
North American gaming operations delivered a very good result with a 54% margin in 2H22 amidst on-going supply chain disruption. The installed base of International Class III machines increased 14% to 31,595 units, burnished by ALL’s top performing gaming titles. Outright sales revenue surged 69% as customers committed more capital. Poor weather and mandated venue closures restricted ANZ revenue growth to 15.5% and a modest 3.5% segment profit increase.
Pixel United (digital) bookings declined 1.0% compared to last year and this was the key disappointment factor in the result. A strong first half result meant expectations were not met as the Russian disruption and a softer mobile game market spoiled the outcome. This is an anomaly, and we would expect digital growth to resume in FY23f.
Investment View
There were two perceptions of this result to which the market initially reacted poorly. The slight miss on the digital business raised eyebrows while the pallid dividend may have pursed some lips. ALL resiles from providing guidance other than to nod towards earnings growth, which the market interprets as ~15% earnings growth in FY23f.
The composition of the result was nonetheless high quality, albeit not perfect thanks to Russia’s invasion of Ukraine. But the foundations of ALL’s on-going success in both land-based and digital is its content and development. Customers do see the long-term investment into content and talent and how this translates into strong game performance (1.4x floor average across the board) so that ALL titles are the slot machines that generate the best return on capital. Over 5,000 customers visited ALL’s booth at the global industry forum, G2E, with many wanting the product on the floor faster.
Pixel United (digital) will exceed digital market growth by >4% in FY23f, according to the company, but it will be more modest than in previous years. ALL has an enviable catalogue of core games and new titles are always in development (10-15 at any point in time).
Consensus forecasts expect 10% pa EPS growth over the next three years. The balance has net cash >$1 billion and the company has a strong growth strategy in place.
Risks To Investment View
The risk in making acquisitions was demonstrated recently by the proposed Playtech transaction which was blocked by key shareholders. If ALL cannot find suitable acquisition targets at a reasonable price, it may not achieve its growth ambitions in real money gambling.
Recommendation
We have retained our Buy recommendation.
Figure 1: FY22 RESULT
Figure 2: Underlying NPATA
Figure 3: Gaming operations
