Aristocrat’s H1 Misses, But Strong Growth Ahead

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Interim earnings for Aristocrat Leisure underwhelmed, but analysts see no reason to doubt the medium-term outlook.

-Aristocrat Leisure’s interim earnings disappoint
-A fall in average fee weighs on the Gaming division
-Second half should see stronger performance
-Macquarie expects a material rise in Interactive earnings over time

By Mark Woodruff 

Interim earnings for slot-machine manufacturer and game developer Aristocrat Leisure ((ALL)) fell short of expectations due to a larger-than-expected decline in returns from its US gaming operations and a steep fall in outright sales in the rest of the world.

Management attributed the US shortfall to an unfavourable product mix and pricing pressure, which led to a lower average daily fee in its participation market, where slot machines are leased to casinos.

Goldman Sachs notes promotional activity and softer market conditions weighed on the average fee-per-day (FPD), but also points out Gaming Operations net adds outperformed key competitor Light & Wonder ((LNW)) for the six months to March.

Ord Minnett also points to tougher competition and delayed purchases weighing on performance outside the Americas.

First-half profit (NPATA) missed consensus by -9%, though there were positives, including a 3% half-on-half increase in participation machines (around 2,500 units added) and a -5% year-on-year reduction in land-based gaming costs.

While the initial response saw shares fall by -14% on result day, Citi sees no material change to Aristocrat’s competitive positioning or medium-term outlook. Management confirmed no material tariff impacts in FY25. UBS views the share price decline as a de-rating reflecting near-term growth concerns, but believes the company’s fundamentals remain intact.

Ord Minnett shares that view, seeing the weakness as cyclical rather than structural. Encouragingly, Citi notes casino commentary indicates solid turnover heading into the second half.

Jarden points out growth from acquisitions, a favourable earnings mix, and prior year cost-outs helped generate margin expansion.

First half summary

In the first half, Aristocrat reported continuing operations profit of $733m, up 6% year-on-year (2% in constant currency), but -9% below consensus.

Within Gaming, North America’s FPD fell -5% year-on-year and came in -3% below consensus. Macquarie estimates the FPD shortfall reduced profit by approximately -$60m, with each US$1/day equivalent to $20-25m in earnings impact.

Product Madness delivered earnings of $387m, ahead of consensus, driven by market share gains and a three-percentage point margin uplift. Interactive also outperformed expectations, with $114m in earnings beating UBS’ forecasts on solid margin expansion, though revenue was soft.

Margins in North America Gaming improved by 1.3 percentage points to 58.1%, a level Goldman Sachs believes is sustainable due to favourable product mix, operating leverage, and cost optimisation.

Importantly, management does not expect any tariff-related cost impacts in FY25, supported by a diversified supply chain that allows hardware exports from Australia and Europe rather than the US.

The case for a stronger second half

Aristocrat reports across three main divisions: Aristocrat Gaming, Product Madness, and Aristocrat Interactive, each offering exposure to different segments of the global gaming industry.

Aristocrat Gaming is the company’s land-based division, responsible for the design, manufacture, and distribution of slot machines and electronic gaming equipment for casinos worldwide. Citi highlights pent-up demand for recently launched hardware, including the Baron cabinet in Australia and the Baron Portrait cabinet in the US (both launched in April 2025), should drive a meaningful uplift in installations and earnings into the second half.

Product Madness, the company’s social casino gaming arm, centres on the Product Madness brand, which remains Aristocrat’s flagship social slots offering. The division also includes the Big Fish Games portfolio, now focused on evergreen titles following a strategic review and the divestment of Plarium.

For this division, Citi expects ongoing growth through operational efficiency and rising direct-to-consumer (DTC) penetration, positioning the business for further margin expansion and increased revenue share.

Margin expansion in Product Madness for the first half was supported by DTC sales and operational efficiency, explains Morgan Stanley, despite an increase in user acquisition (UA) spend to 18% from 16% a year prior to support bookings growth for the NFL game launch.

Covering real money gaming (RMG), iGaming, iLottery, and online sports betting, Aristocrat Interactive was significantly expanded via the acquisition of NeoGames and now offers regulated online gaming content, aggregation services, and technology platforms to global operators.

Management re-iterated the FY29 Aristocrat Interactive revenue target of US$1bn.

The first half performance in Interactive aligned with Morgan Stanley’s expectations. Margins expanded by 540bpts, largely driven by a mix shift to iLottery and an acceleration in content launches, explains the analyst.

Citi sees further upside from new game rollouts and regulatory expansion, with Aristocrat currently operating in only three of seven legalised US states, suggesting ample room for growth.

The company is confident FPD can keep growing market share with FPD in the second half driven by new game releases such as Phoenix Link and House of the Dragon.

Company-wide, management guided to profit (NPATA) growth on a constant currency basis (ex Plarium), driven by gaming growth in the second half, Product Madness investment efficiency and market share gain, and upside within the Interactive division.

While product and channel mix are likely to weigh on the second half since they will only be cycled late this half, notes Citi, pricing should not be a drag and there should be a further contribution from Phoenix Link given its strong net adds in the first half.

Management held back the release of key titles such as Dragon Link and was transitioning the technology stack. Once this has been completed, Macquarie expects Aristocrat will be able to move towards 20% US market share in the Interactive division in time from around 4% currently.

Certainly, Bell Potter believes most of the factors driving the first-half disappointment are isolated to the period and maintains Aristocrat is well placed to deliver a strong second half.

Capital management

Macquarie highlights solid cash generation in the first half, with operating cash flow of $773m, up 18% year-on-year. Aristocrat confirmed the $750m share buyback program, paused since late January 2025, will now resume.

This broker expects Aristocrat to return to a net cash position in FY26, from its current net debt of $425m, supported by ongoing strong cash flow in combination with annual share buybacks of approximately $750m.

M&A remains a focus, with management indicating any future acquisitions will align with existing verticals and aim to accelerate growth.

Outlook

Aristocrat Leisure remains a double-digit growth story, UBS maintains, with the broker forecasting an 11% compound annual growth rate (CAGR) in EPS (before amortisation) over FY25-30.

This outlook is underpinned by the company’s high-quality core gaming franchise, scalable growth opportunities in Interactive, and significant capital available for deployment or return to shareholders, explain the analysts.

There are seven daily covered brokers in the FNArena database researching Aristocrat Leisure, six of which have Buy ratings. Ord Minnett rates the stock Accumulate, which sits in between Buy and Hold.

Stockbroker Morgans took its time and only updated this morning.

The average target of the seven brokers is $73.23, suggesting 16.50% upside to Friday’s closing share price. Trading on relatively high multiples, the implied dividend yield is only circa 1.5%.

Outside of daily coverage, Goldman Sachs and Jarden are Buy-rated with targets of $74 and $64, respectively.

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