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Aristocrat Leisure Ltd - Disappointing HY20 results

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Aristocrat Leisure Ltd (ASX: ALL) is an Australian gambling machine manufacturer. Aristocrat has a land-based business and digital business to provide their services. Aristocrat has a market capitalisation of A$21.5 billion.

 

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What are the key points from Aristocrat HY20 results?

Aristocrat operating revenue for HY20 is A$2.2 billion, up 7% compared with the corresponding period. Net profit after tax for HY20 is A$305 million, down 14.2% compared with the corresponding period. Earnings per share for HY20 is A47.9 cents, down 14.3% compared with the corresponding period. Aristocrat decided not to pay an interim dividend for HY20 due to the uncertainties associated with COVID-19.

Even though Aristocrat business has been materially impacted by COVID-19, Aristocrat land-based and digital businesses operational performance strengthened over the half year.

 

Land-based business

Aristocrat observed declines across all land-based businesses in the period driven mainly by COVID-19 with customer venue closures globally, leading to halting of capital spend by customers and limited Gaming Operations revenue during the month of March 2020.

Aristocrat’s Class III Premium installed base grew 9.4%, and its Class II installed base grew 1.8%. Aristocrat’s market-leading average fee per day pre-COVID-19 increased 0.3% to US$50.20 (normalised to exclude the number of days operators were closed). On an unadjusted basis, the average fee per day for the period was just above US$46.


Digital business

The Digital business delivered double-digit growth in bookings, revenue and profit over the period, compared to the prior corresponding period. Raid Shadow Legends continued its impressive growth trajectory, generating US$160 million in bookings in the period. Average Bookings Per Daily Active User (ABPDAU) grew over 30% to US$0.50.


What has been Aristocrat response to COVID-19?

Several land-based businesses in the period were closed due to health concerns around COVID-19. Aristocrat notes that once physical distancing and travel restrictions are eased, these businesses will re-open on a phased basis.

Regarding Aristocrat capital management activities, the company has reduced operating expenses by $100 million. The company has drawn down the existing revolving credit facility in March 2020 worth $142 million. The company has secured a US$500 million incremental loan facility in May 2020, maturing October 2024.

Finally, the company has suspended their interim dividend to ensure enough liquidity moving forward.


What is the outlook?

The short-term outlook for Aristocrat is negative. This is mainly due to the impacts COVID-19 is having on the company. However, once COVID-19 restrictions ease and a vaccine is developed, operations should continue as normal.

Aristocrat management notes over FY20 the company will continue to investment into Design and Development, land-based and digital portfolios, which should grow the business competitiveness and expand the company’s reach over the medium to long term.


What is the market reaction?

The market reaction to Aristocrat HY20 result is negative. Aristocrat share price is down around 4.5% and is currently trading at A$26.11. This reaction is negative considering the Australian market is up around 0.4% today. Aristocrat has a forward P/E ratio in the low twenties.

 


Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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