-Fiscal/monetary stimulus boosts player expenditure
-Participation should grow as the vaccine roll-out progresses
-iGaming likely to eventually impact on social and land-based casinos
In a preliminary look at the first half result, with accounts released on
Credit Suisse struggles to find specific items that could have generated so much profit in a half year, while noting Oklahoma Class II and III delivered an outstanding yield. Additionally, the company added installations around the US while its competitors seemingly lost installations.
The broker subsequently upgrades estimates for net profit in FY21 by 24%, given the strong US land-based operations and the digital performance, but remains wary of the fiscal/monetary stimulus that exists and the lack of entertainment options in the US and Australian economies, suspecting the stellar performance may be temporary.
Hence, FY22 and FY23 net profit estimates are not upgraded while the broker calculates Aristocrat will be in a net cash position by FY23. Aristocrat has gained share in social casino, which is 27% of group revenue, and Credit Suisse is now modelling 30% revenue growth for the social casino business.
Citi points out the rapid roll-out of vaccines in the US has meant stronger attendance at casinos and stimulus cheques have boosted expenditure per player. This delivered the very high rate of profitability that flows through to the fee-per-day gaming operations.
Pent-up demand, stimulus and a new customer demographic are underpinning the business as Citi also notes younger players have been visiting casinos, given the lack of alternative entertainment options.
Also on this theme, while the US has been significantly disrupted,
Despite the outright replacement market still being down -40-45% the broker believes the commentary regarding increased market share is an indication of a strong product portfolio. Moreover, first half gains are not only likely to stem from a quicker recovery in revenue but also disciplined cost control.
Macquarie highlights the low level of gearing and lack of debt maturities over the short term which place the business in a strong position relative to the competition. Unlike pure slot manufacturers,
Moreover, the company is still under-penetrated in most markets, with Asian and Australian outright sales the exception. Macquarie is of the view that the company's upgrade to first half earnings is more about margins within the land-based segment. From an operating machine perspective the broker now expects the active installed base to exceed the 75-85% range yet considers this captured within forecasts.
Risks
These include currency conversion, US tax reform and the cycling of pandemic-related volume benefits. Despite the recovery being ahead of expectations, Macquarie highlights the likelihood Aristocrat will need to mitigate the eventual cannibalisation of land-based casinos and social casinos.
The broker also expects the gap to company's superior product will narrow eventually. While diversification would reduce this risk, and there are M&A options given the balance sheet capacity, the timing is unclear and, therefore, M&A does not warrant inclusion in forecasts.
Digital
Citi expects digital earnings will be broadly in line with the prior half and margins are likely to stabilise at around 35%. Longer-term margin upside is likely to be driven by monetisation of RAID and a shift of users to Plarium Play, which avoids platform fees.
Digital business may account for around 40% of profit in FY22, having grown materially over recent years. Yet Macquarie notes the digital business is skewed toward two products and this creates concentration risks.
Another consideration within digital is iGaming in
There is potential for a re-rating and expansion into iGaming is the next catalyst, in
FNArena's database has six Buy ratings and one Hold (Macquarie). The consensus target is
See also, Aristocrat Signals Bullish Rebound on
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