| Stock: | Aristocrat Leisure Ltd | ||
| Exchange: | ASX | Symbol: | ALL |
| Date: | 12-Dec-22 | Latest price: | A$33.64 |
| Market Cap: | A$22.2 bn | Fair Value: | A$25.21 |
| Forward DY: | 1.5% | Payback (Years): | 11 |
| Financial Y/E: | 30-Sep-23 | Rating: | HOLD |
| Sector: | Discretionary | Industry: | Gambling |
| Investment Theme: | LT Growth | Macro Trends: | Online Entertainment |
Aristocrat is trading at a premium to our estimate of fair value while the stock is in a down-trend. Our recommendation is to HOLD.
Valuation
We increased our fair value estimate for Aristocrat (ALL) by 66%, to A$25.21, based on the following long-term projections:
- Real organic long-term revenue growth of 6%;
- EBITDA margin of 30% (currently 33.2% in FY22);
- Capital expenditure of 5.0% of revenue;
- No increases in net working capital; and
- An effective tax rate of 30%.
We selected a payback period of 11 years (formerly 10 years) to reflect Aristocrat’s strong market share but in a cyclical industry. The company recovered well from the pandemic but may have benefited from increased disposable income due to government transfers.
Business Profile
Aristocrat Leisure is an electronic gaming machine manufacturer, selling machines to pubs, clubs, and casinos. The firm is licensed in all Australian states and territories, North American jurisdictions, and essentially every major country. Aristocrat is one of the largest three players in the space along with International Game Technology and Scientific Games. Through acquisitions of Plarium and Big Fish, Aristocrat now derives a significant proportion of earnings from mobile gaming, under the Pixel United banner.
Performance
Revenue grew 12% in FY22, while EBITDA grew 13.7%, on a constant currency basis.
Capital structure
Aristocrat’s cash assets exceed debt plus lease liabilities.
Disclosure
Staff of The Patient Investor may directly or indirectly own shares in the above company.