Aristocrat Thrives On Stimulus

Australia | May 18 2021

Aristocrat Leisure has flagged a surge in net profit in the first half, benefiting from increased attendance at casinos as alternative entertainment options remain limited

-Fiscal/monetary stimulus boosts player expenditure
-Participation should grow as the vaccine roll-out progresses
-iGaming likely to eventually impact on social and land-based casinos


By Eva Brocklehurst

Aristocrat Leisure ((ALL)) has bounded out of the blocks, its post-pandemic recovery occurring much faster than many expected as unprecedented stimulus fires up the US economy.

In a preliminary look at the first half result, with accounts released on May 24, operating earnings were reported at $750m and net profit at $412m, with little detail other than North America, Australia and the digital business are ahead of the prior comparable period.

Credit Suisse struggles to find specific items that could have generated so much profit in a half year, while noting Oklahoma Class II and III delivered an outstanding yield. Additionally, the company added installations around the US while its competitors seemingly lost installations.

The broker subsequently upgrades estimates for net profit in FY21 by 24%, given the strong US land-based operations and the digital performance, but remains wary of the fiscal/monetary stimulus that exists and the lack of entertainment options in the US and Australian economies, suspecting the stellar performance may be temporary.

Hence, FY22 and FY23 net profit estimates are not upgraded while the broker calculates Aristocrat will be in a net cash position by FY23. Aristocrat has gained share in social casino, which is 27% of group revenue, and Credit Suisse is now modelling 30% revenue growth for the social casino business.

Citi points out the rapid roll-out of vaccines in the US has meant stronger attendance at casinos and stimulus cheques have boosted expenditure per player. This delivered the very high rate of profitability that flows through to the fee-per-day gaming operations.

Pent-up demand, stimulus and a new customer demographic are underpinning the business as Citi also notes younger players have been visiting casinos, given the lack of alternative entertainment options.

Also on this theme, while the US has been significantly disrupted, UBS flags the fact that around 90% of participation machines are now switched on and this should grow as the vaccine roll-out progresses.

Despite the outright replacement market still being down -40-45% the broker believes the commentary regarding increased market share is an indication of a strong product portfolio. Moreover, first half gains are not only likely to stem from a quicker recovery in revenue but also disciplined cost control.

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