Aristocrat Leisure (ALL) develops, manufactures, and distributes gaming machines and systems in Australia, New Zealand, the Americas, Asia Pacific, South Africa and Europe.
The group has two divisions Gaming Machines Manufacturing and Gaming Machine Services.
ALL is the largest gaming machine company in Australia and the world’s second-largest slot machine maker.
The company has been a basket case over the past few years amid weak consumer spending and a surging Australian dollar, as well as industry and operational problems.
However ALL’s FY11 results showed a return to growth and the company’s earnings finally look to have bottomed out.
ALL FY11 were extremely impressive when compared to FY10.
ALL reported an FY11 EBIT of $110.8 million, which was up 30.8% on a normalised basis. EPS was up 19.4% to 10.3 cents per share at.
More impressive were the results that were reported on constant currency terms. EBIT was $119.7 million, up 41.3%, whilst EPS was up 32% to 13.6 cents per share.
Operating cash flow increased from $73.6 million in FY10 to $108.2 million in FY11, a 47% increase.
In reflection of a healthier balance sheet, the company was able to decrease its debt by 18.8% to $232 million.
ALL did not provide any specific guidance for the coming year, but did state it expects strong growth in normalised full year net profit after tax in FY12.
Since 2008 ALL’s EBIT has contracted significantly on an annual basis, but last year was the first year since then that group has shown growth.
The business grew on a normalised basis, but more importantly, on a constant currency basis. As such, any weakness in the Australia dollar will have a positive effect on ALL’s earnings.
The RBA appears to have moved to an easing bias, and with the probability of further monetary easing in the US diminishing, a weaker Aussie dollar compared to US dollar is becoming a likely outcome, thus benefiting ALL.
The company also looks well placed to take part in any cyclical rebound, which we think is already evident in the latest results.
We believe that market sentiment towards the stock has improved drastically in recent times, especially given the spectacular FY11 results.
If ALL continues its growth trend we believe there is plenty of near-term upside on the horizon.
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