Aristocrat Leisure: 1H22 earnings well above expectations

About the author:

Alexander Mees
Author name:
By Alexander Mees
Job title:
Co-Head of Research and Senior Analyst
Date posted:
20 May 2022, 9:00 AM
Sectors Covered:
Gaming and Retail

  • Aristocrat Leisure's (ASX:ALL) earnings (NPATA) in the first half of FY22 were 41% higher than in the first half of FY21, exceeding our estimate by 13%. Investment in product and partnerships paid off handsomely in the Americas Gaming, which saw segment profit rising 56% in USD terms. There was also positive earnings growth in ANZ and International Class III Gaming as well as the Digital business, Pixel United.
  • Operating cash flow increased by 42%, which combined with the proceeds of October’s equity raise, left ALL with $0.5bn in net cash, giving it the confidence to announce a $0.5bn share buyback.
  • We have increased our NPATA estimate by 7% in FY22 and by 3% in FY23. We reiterate our high conviction ADD rating with a 12-month target price of (login to view).


ALL has announced its earnings for the six months to March 2022 and launched an on-market buyback to up to $500m.


Americas Gaming was the key driver. 37% growth in revenue and 56% growth in profits in the Americas Gaming was above expectations and accounted for the majority of earnings growth in the group.

ALL has continued to take share in both Gaming Operations (machine rental) and Outright Sales, while pushing up both daily rental fees and average selling prices.

PxU has managed the disruption in Ukraine and pushed on with growth. Investors have fretted about the possible disruption to the business of ALL’s digital business Pixel United (PxU) from the war in Ukraine.

Around half of PxU games developers were located in Ukraine but 75% have now been moved to safe locations in PxU’s global network. ALL reports ‘no material earnings impact’ to PxU.

A ‘build and buy’ strategy for real money gaming. ALL has not given up on its ambitions to build a third growth engine for the group in online real money gaming (RMG) having missed out on the acquisition of Playtech.

Far from it. ALL has articulated a strategy of organic investment combined with potential M&A to build a technology platform that will give it exposure to this rapidly growing space. Its initial focus is likely to be on the North American market, where it can leverage its content and relationships to give it an important advantage.

Forecast and valuation update

We have increased our NPATA estimates by 7% to $1,111m in FY22 and by 3% to $1,284m in FY23. Before today’s result, consensus was for NPATA of $1,042m in FY22 and $1,203m in FY23.

Our target price falls from (login to view) due to use of a higher weighted average cost of capital in our DCF valuation and lower peer company multiples in our sum-of-the-parts valuation.

With significant upside to our target price from the current share price, despite today’s strongly positive reaction to the result, we reiterate our high conviction ADD recommendation.

Investment view

We believe the positive trajectory of Aristocrat’s share price can be sustained for the following key reasons:

  1. Long-term organic growth potential. Aristocrat is better capitalised than many of its competitors and has what we regard as a strong platform to continue investment in UA and D&D in both its land-based gaming and digital businesses.
  2. Strong cash conversion and ROCE. Aristocrat is a capital-light business, despite its ongoing investment in Gaming Operations capex. It has a high level of cash conversion and ROCE.
  3. Strong platform for investment. With $3.3bn of currently available liquidity, ALL has significant funding capacity for organic and inorganic investment, even after the buyback.


Risks include adverse FX movements; loss of market share in land-based gaming or digital gaming; disruption to the pipeline of new games from geopolitical or other reasons; and escalation in operating costs including design and development and user acquisition costs.

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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.

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