Australia | Jul 27 2023
Analysts expect further market share gains across Aristocrat Leisure’s North American business and remain Buy-rated.
-Aristocrat Leisure is set to increase market share in North America
-Market leader across US Gaming Operations and US outright sales
-consistent performance across the social casino portfolio
-Additional growth will derive from NeoGames acquisition
By Mark Woodruff
Shares in gaming and technology company Aristocrat Leisure ((ALL)) began 2023 on a 52-week low at $30.36 and have since gained around 25% in a relentless upward trend.
Further upside may be in prospect with Jarden anticipating market share gains across the North American business.
Online gaming (iGaming) revenues in the region are on track to reach US$8bn, and Macquarie suggests the growth outlook has improved with the acquisition of NeoGames, which is set to complete in May next year.
The Pixel United division has consolidated its number two position across social casino with around 13% of the addressable market, according to Jarden, including a market-leading position across social casino slots (poker machines).
Social casino games are websites or phone apps on which one gambles just for fun, not for a payout. These games represent around 52% of Pixel United's total revenues and are the highest margin genre across the portfolio, points out the broker.
In Jarden's view, Aristocrat will extend its leading market position across the most lucrative US Gaming Operations (or leasing market) and has now established itself as the market leader across the more competitive US outright sales market.
Before unallocated costs, Gaming Operations accounts for 81% of the company's North American Gaming earnings, or 49% of group earnings, while the US outright sales market represents around 10% of group earnings.
While Aristocrat Leisure is a global business, there’s a primary focus on the North America and A&NZ regions.
The company designs, develops and distributes gaming content, platforms and systems, and its land-based gaming products include pokies, blackjack and roulette machines.
Operations include the online real money gaming (RMG) business, now branded Anaxi, land-based gaming under the Aristocrat Gaming title and digital gaming under the Pixel United title.
Macquarie sees momentum for the land-based business and growth optionality within North American Gaming and Anaxi (which includes NeoGames), with content revenue opportunities for the Anaxi.
Underpinned by the NeoGames acquisition, Citi also recently noted the potential upside from RMG and highlighted the market-leading land-based business.
This broker also noted the consistent performance in the social casino portfolio, with bookings growing by around 6% year-on-year in the three months to June.
Aristocrat continues to gain market share across the most profitable sectors in Gaming Operations, premium leased and wide area progressives (WAP).
At an individual game level, Aristocrat has 30 of the top 50 premium leased and WAP games, compared to competitors Light & Wonder and IGT with 10 and 7 games, respectively.
Across the WAP market segment, Aristocrat now holds 17 of the top 25 games.
First half results
Back in mid-May, Morgans described Aristocrat’s first half results as a tale of two businesses.
The largest division, Americas Gaming, achieved 20.6% profit growth, while there was an -8.9% decline in the digital gaming division Pixel United.
At the time, the broker suggested Pixel United will experience challenging conditions and deliver softer growth for the next 12-18 months, though recognised a lot of near-term growth via land-based gaming in the US.
Morgan Stanley was disappointed by the performance of the digital business amid lower bookings and margins but felt bookings growth would turn positive in the second half.
This broker maintained its Overweight rating on the company’s content advantage, the build in real money gaming and, as noted by Morgans, strength in the land-based North American business.
FNArena’s daily monitoring of Aristocrat Leisure consists of six brokers with five Buy (or equivalent) ratings, while UBS is currently restricted on providing a rating or target.
The average target price of the five brokers falls to $44.06, which suggests nearly 15% upside to the latest share price.
Jarden is not monitored daily. This broker maintained its $41.90 target and Overweight rating in new research penned on July 24.
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