Aristocrat Leisure: FY22 earnings - Winning streak

About the author:

Alexander Mees
Author name:
By Alexander Mees
Job title:
Co-Head of Research and Senior Analyst
Date posted:
17 November 2022, 7:00 AM
Sectors Covered:
Gaming and Retail

  • A post-COVID-19 recovery of casino capex budgets, combined with increased product penetration, drove a strong performance by Aristocrat Leisure's (ASX:ALL) land-based gaming business in FY22, especially in its key US market. By contrast, growth in the digital gaming business, Pixel United, came to an abrupt (though expected) halt as the mobile games market normalised following the lockdown-fuelled sugar hit of the prior year.
  • In the final reckoning, group EBITA in FY22 was much as expected. ALL reported 24.7% growth to $1,592.9m, which was just 0.2% below our forecast, though 1.5% below consensus. Higher finance costs meant NPATA was 1.1% short of our forecast and 1.5% below consensus, but up 27.1% on last year. The stronger USD dollar was a tailwind on the translation of ALL’s profits overseas. Constant currency growth in NPATA was 20%, also in line with our estimate. 
  • Whether it was the disappointment of there being no acquisition announcements today, the negative effect of higher finance costs on future estimates, or simply a reaction to FY22 earnings coming in slightly below consensus, the 5% decline in ALL’s share price today creates a buying opportunity. We have taken our NPATA estimates down by 1.1% in FY23 and 0.9% in FY24 (higher finance costs) but, even after those adjustments, forecast 14.7% growth in FY23 and 7.9% in FY24. We reiterate our (login to view) 12-month target price and ADD recommendation.


FY22 earnings release.


Why didn’t Pixel United grow? ALL’s digital gaming business Pixel United (PxU) grew its sales at a CAGR of 22% in USD terms between FY18 and FY21. USD sales in FY22 were down (0.6)% y/y.

This performance was better than the market as a whole, however, which contracted by 5.0% in FY22 as customer gaming behaviour normalised post-lockdown. PxU adapted to market conditions by pulling back its user acquisition (UA) spend to 26.1% of revenue (FY21: 28.2%).

It also did not release any new titles in FY22, although Merge Gardens was launched just after the year-end. So PxU actually grew market share in FY22 on the strength of its existing games portfolio.

The mobile games market is forecast to grow at 4% in FY23 and ALL thinks it can outperform that (we forecast 4.2% growth in USD). 

Gaming demand is resilient. US casino gaming revenues increased by 2.6x between 2000 and 2021, a CAGR of 4.6%. Revenues only fell in three of those 21 years: one was 2020 (COVID) and the other two were during the GFC in 2008 and 2009, but the y/y declines were just 1% and 3% respectively.

At this stage, we do not expect a sharp decline in gaming demand in the year ahead.

Forecast and valuation update

Our revenue estimates increase by 5.9% in FY23 and by 4.2% in FY24, driven mainly by higher average selling prices and favourable FX movements.

We have lowered our group EBITA margin forecast by 160 bp to 28.8% (FY22: 28.6%) to reflect COGS inflation. Our EBITA estimate increases by 0.3% in FY23 and declines by 0.6% in FY24.

We have increased our finance cost estimate for FY23 by $23m, leading to a 1.1% reduction in our NPATA estimate in that year to $1,261m. Our FY24 NPATA forecast declines by 0.9% to $1,361m.

Investment view

We have three key reasons for recommending investors increase their holding in ALL:

  1. Long-term organic growth potential. ALL is better capitalised than many of its competitors and has what we regard as a strong platform to continue investment in design and development in both its land-based gaming and digital businesses.
  2. Strong cash conversion and ROCE. ALL is a capital-light business, despite its ongoing investment in Gaming Operations capex and working capital. It has a high level of cash conversion and ROCE.
  3. Strong platform for investment. ALL has funding capacity for organic and inorganic investment in online RMG, even after the recent buyback. Its current available liquidity is $3.8b.


  • Adverse FX movements.
  • Loss of market share in land-based gaming or digital gaming.
  • Disruption to the pipeline of new games.
  • 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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