Aristocrat Leisure’s stock rallies on the solid first half results of Fiscal 2019

Australian billion-dollar gaming company Aristocrat Leisure Limited (ASX: ALL) reported 35.0% growth in operating revenue to $1.56 billion for the six months ended 31 March 2018. Group’s 60% of revenue driven from US market was supported by strong market segmentation and investment in land-based North America adjacencies.

Aristocrat Limited is an ASX-listed gaming provider and games publisher, which offers a diverse range of products and services including electronic gaming machines, digital social games and casino management systems.

The company’s land-based North America business is divided into two segments that include Gaming Operations and Outright Sales. Through investment into adjacent market opportunities, Aristocrat targets to imprint its presence in 96% of the Outright Sale market and 80% of the Gaming Operations market by late 2020.

Market Segments of Aristocrat’s North America Business (Source: Company’s Announcement)

On the numbers front, Aristocrat achieved 16.8% growth in Normalised profit after tax and before amortisation of acquired intangibles (NPATA) to $422.3 million in 1HFY19, compared to the $361.5 million delivered in the six months to 31 March 2018.  EBITA grew 16.8% to $644.4 million during the first half of Fiscal 2019 and NPAT increased to $356.5 million in 1HFY19 from $310.5 million in 1HFY18, up 14.8% on a reported basis.

Digital Business of Aristocrat has been another key highlight, registering 37% increase in revenue and 35% growth in half-yearly bookings. The growth outlines the full period benefit of acquired Plarium and Big Fish businesses with continued strong performance across the game portfolio. Through acquisitions of Plarium and Big Fish, Aristocrat is now targeting a US$32 billion market opportunity.

Snapshot of Aristocrat’s 1HFY19 financial performance (Source: Company’ Announcement)

The Directors have authorised an interim fully franked dividend of 22.0 cents per share, up 16%, in respect to the six months ended 31 March 2019. The record and payment dates for the interim dividend are 30 May 2019 and 2 July 2019, respectively.

Tax Update:

Aristocrat is in the process of implementing changes in the Group structure, which is expected to result in reductions in foreign cash tax paid and book tax expense from FY20 onwards. Effective tax rate (ETR) expected to reduce by 150 to 250 bps compared to the FY19 ETR, as per the report.

Tax amendments underscore Aristocrat’s US market share, which forms the majority of Group’s revenue. However, despite the change, Aristocrat would continue to remain Australian tax resident and pay taxes in Australia.

Outlook:

User Acquisition or UA spend is expected to remain at around 25% to 28% of overall Digital revenues, with the higher relative spend reflective of the increased number of game releases planned for FY19.

In addition to maintaining market-leading share positions across key for-sale segments globally including in the APAC region, Aristocrat targets incremental gains in attractive land-based Outright Sales in North American adjacencies.

Aristocrat Chief Executive Officer and Managing Director, Trevor Croker, said: “Aristocrat continues to deliver above market profitable growth, leading to strong free cash flow and the ability to reinvest to self-fund future growth, whilst ensuring strong foundations remain in place.”

The company expects to achieve a further 100 – 150bps reduction in the Group’s effective tax rate over FY18.

1HFY19 results took Aristocrat’s stock up by 7.315% in the morning session to trade at $28.460 as at 23 May 2019 (1:02 PM AEST). Over the past 12 months, ALL has slipped by 5.82% despite a decent upside of 2.28% in the past three months.

Also Read: Reasons to Look at Aristocrat Leisure Limited


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