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Aristocrat Leisure Eyeing Real Money Opportunity

Australia | Mar 29 2023


Aristocrat Leisure continues to position itself to take a slice of the potential US$20bn pie that could be the North American real money gaming market. 

-Investor roundtable sees Aristocrat Leisure reiterate full year guidance
-Land-based gaming continues to underpin value near-term, but real money gaming offers huge potential
-Australia and New Zealand has continued to lag in the lead up to the recent New South Wales election

By Danielle Austin

Ahead of delivering interim results in May, Aristocrat Leisure ((ALL)) organised an investor roundtable during which management reiterated guidance for FY23 net profit growth.

North American land-based gaming has underpinned the company’s earnings since the covid pandemic, and continues to be Aristocrat's key earner, determining the company’s intrinsic value.

A global gaming and technology company, the company's operations span three units, including land-based gaming under the Aristocrat Gaming title, digital gaming under Pixel United title, and real money gaming under Anaxi title. 

While pointing out some emerging regional pockets of weakness in land-based gaming in North America, Jarden (Overweight, target price $39.04) noted Nevada operations remained strong through January. Weakness was largely reported in the midwest, with revenue in Indiana, Iowa, Missouri, Ohio, Kansas and Michigan trending down since the December quarter. 

This broker posits resilient commercial casino revenue may have been buoyed by the combination of pent up demand and a significant increase in household savings that emerged over the covid pandemic. However, with these largely depleted over the last year, Jarden anticipates spending could decline through the remainder of the year. 

Aristocrat Leisure gets ahead of the trend with domestic cashless gaming trial

While Aristocrat Leisure’s Australia and New Zealand land-based gaming operations have remained subdued, particularly in the lead up to the New South Wales election, it appears the company is getting in front of a possible introduction of cashless gaming in New South Wales. 

To this end, as noted by Morgans (Add, target price $43.00), the company has installed a total 140 trial cashless machines in the state. Morgans expects improved clarity around this theme to emerge following the recent election (which was won by the Labor opposition). Morgans remains optimistic about the long-term growth potential for the company, highlighting its sizable capacity to fund investment across operations. 

Real money gaming offers a US$20bn opportunity in coming years 

The continued emergence of real money across North America offers sizable opportunity as changes to legislation see new markets open. Ord Minnett (Accumulate, target price $43.00) expects the company will need to invest heavily in this area in order to take meaningful market share in what is proving a competitive market.

With the North American real money gaming market estimated by some to offer a total opportunity of US$20bn by 2025, Ord Minnett expects Aristocrat Leisure can leverage its existing gaming relationships in the region to win market share. The broker sees the company taking early steps to this end, focusing on building capability and signing up omni-channel players, but this broker also notes competitors appear to be eyeing up the opportunity as well. 

Morgan Stanley (Overweight, target price $43.00) points out the company’s real money gaming business, Anaxi, has recently acquired Roxor Gaming and signed content partnership agreements with BetMGM, Caesars and Penn Entertainment. Morgan Stanley expects more operators will be added to list over the remainder of the fiscal year as the company continues to seek out merger and acquisition opportunities that complement its real money gaming operations. 

With its current outlook and the opportunity available in real money gaming, Goldman Sachs (Buy, target price $42.80) remains positive on the stock. This broker describes Aristocrat Leisure as the most strategically diversified pick of its gaming coverage. 

FNArena's consensus price target of $42.73, derived from six stockbrokers monitored daily through the Australian Broker Call Report, suggests some 16% upside from the current share price, excluding of dividends.

Consensus forecasts, derived from the same brokers, are suggesting EPS will grow by 30% this year, and by 7.7% in FY24. Foward-looking implied dividend yields are 1.8% (FY23) and 1.9% (FY24).

Jarden is not included in the six.

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