Aristocrat Delivers Strong Top And Bottom-Line Growth Sending Shares 6% Higher

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Aristocrat Delivers Strong Top And Bottom-Line Growth Sending Shares 6% Higher

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  • Revenue up by 23 percent to $2.7B and statutory Net Profit After Tax up 46 percent to $530M
  • Interim fully franked dividend of 26 cents payable on 1 July 2022
  • Operating cash flow $502M; Debt-free and $523M net cash at 31 March 2022
  • 1000 Aristocrat employees work in Ukraine; a business continuity plan is in place
  • The crisis in Ukraine is not expected to have a material impact on earnings
  • Growth in online gaming is supportive of Aristocrat’s favourable long-term earnings outlook.

Aristocrat Leisure Limited (‘Aristocrat’) was founded in 1953 and is today a global gaming behemoth, employing 7000 people in 20 locations around the world and operating in over 100 countries. Aristocrat is credited with inventing the world’s first poker machine, with fully lit reels and scorecard. Since its ASX listing in 1996, Aristocrat has expanded globally, however with digital gaming taking hold, online gambling is key to its future.

High quality half-year result to March 2022

Aristocrat reported a half-year Net Profit After Tax before Amortisation of $580 million, which is equivalent to a statutory Net Profit After Tax of $530 million. This result represents a 41 percent and 46 percent increase respectively, on the previous corresponding period to March 2021.

Earnings Per Share (before Amortisation) came in at 87.5 cents, or 80 cents on a statutory EPS basis. An interim fully franked dividend of 26 cents per share will be paid to shareholders on 1 July 2022. This is an increase of 73 percent on the 15 cents dividend paid in the previous corresponding reporting period.

The impressive profit result was driven by strong organic growth in Revenue, with Operating Revenue up by 23 percent to $2,745 million. A key feature of the higher Revenue is the acceleration of Aristocrat’s strategy to build scale in its online Real Money Gaming (RMG) business segment. RMG is Aristocrat’s casino and gaming offering delivered through an online platform, where players purchase tokens and chips for cash, to facilitate gaming or wagering. Aristocrat seeks to build the world’s leading online gaming platform and anticipates being live with i-Gaming products in two jurisdictions in the US before the end of this calendar year.

Operating cash flow of $502 million was up $48 million or 42 percent compared to cash flow of $354 million for the 6 months to March 2021. This strong cash flow comfortably covers the $173.7 million interim dividend. The closing cash position was $2,980 million, compared to total borrowings of $2,457 million, resulting in a surplus of $523 million cash on 31 March 2022. The high amount of cash reflects the $1.3 billion cash received in the equity raising for the proposed purchase of Playtech, which did not proceed. The surplus cash and existing draw-down facilities provides in excess of $3.3 billion of liquidity available at 31 March 2022.

Hostilities in Ukraine

The half-year result is impressive against the background of mixed operational conditions and challenges that prevailed throughout the reporting period. Hostilities in Ukraine, where approximately 1000 Aristocrat employees work within the Pixel United business unit, have resulted in Aristocrat implementing a comprehensive business continuity plan to support and protect its people. The support provided includes funds, shelter, emergency supplies and other direct aid, including visas, transport, and legal assistance to allow some employees to relocate. To date, 750 employees been relocated to safer places in Ukraine or abroad. Current output is running at 70 percent of pre-conflict levels; an extraordinary achievement.

Business risks are being managed and the operational impact of Russian hostilities on Ukraine is being minimised, to the extent practical. Pixel United is a resilient and scale business with global operations and has leveraged its scale to manage the crisis. Aristocrat’s games were suspended in the Russian market in March and the business is working quickly to determine the right approach for its Russia-based studio.

Looking Ahead

Aristocrat is well positioned for future organic growth over the full year to 30 September 2022 and the crisis in Ukraine is not expected to have a material impact on earnings. Growth continues in installed machines and fee per day as well as growth in floor share across key gaming sales markets globally. Sustained long-term growth is likely to continue, driven by continued investment in Design and Development investment, presently running modestly above the historic range of 11-12 percent of revenue.

Gaming continues to migrate online, which is a $90 billion per year market. Aristocrat’s strategic focus on this opportunity is supportive of its favourable long-term earnings outlook.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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