A big performance from the Americas segment underpinned a strong interim result for Aristocrat Leisure. An on-market share buyback will optimise the balance sheet without compromising the ability to invest or acquire assets.
ALL easily beat consensus expectations for tis 1H22 result. Reported NPATA of $580.1 million increased 41% over last year as North American revenue and margin sizzled. Installs into two new Philippines openings helped International Class III growth with more green shoots showing across EMEA.
The relocation of about 1.3k Ukraine staff to Poland and elsewhere took the edge of the Digital result, although more recent evidence suggests this is easing. Plarium Play, ALL’s in-house platform with no third party commissions payable, accounted for approximately 27% of total Plarium revenues, a 7% gain half-on-half.
The $500 million share buyback reflects a proactive capital management focus. ALL had previously raised $1.3 billion in October 2021 in its pursuit of Playtech but was unsuccessful. The buyback will not dissuade management from looking at future acquisitions. It will also not prevent further capital management actions including dividends or for the company to invest in its own growth initiatives such as Real Money Gaming (RMG).
Investment view
The share price has been soft following the disappointment of the proposed Playtech acquisition. But ALL has an array of catalysts that will create earnings growth in the order of 15% pa out to FY24f based on consensus forecasts.
This will be from a valuation base that has ALL at 21x FY22f eps. The catalysts include on-going strong land-based datapoints from US casinos and slot surveys.
ALL could fund acquisitions of $750 million to $1 billion on a Digital business with a multiple of 9-10x EBITDA that would be 6.5-8.0% accretive to FY23f EPS, in our view.
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.
