How long have you held the stock?
Since late 2011
What do you like about it?
Exposure to the US economy and the gaming sector globally. The US economy is the one real bright spot for growth in the world and the $US earnings are increasing in value along with the currency. They have invested strongly in research and development in recent years and that is now paying off with popular game releases and increasing market share as well as having a deep library of older games. The recent acquisition of gaming company VGT is quite accretive for them and increases their proportion of recurring revenues. The concentration of VGT to Oklahoma might temper growth here, due to the weakening oil price and its impact on regional economic activity, but the broad uplift to the consumer and gaming, in particular, from increased disposable income across the rest of the US and Australia will more than compensate.
How is it better than its competitors?
It has taken the lead in recent years in new game development following the investment in R&D and acquisition of new talent. Ship share has been growing strongly at the expense of the competition.
What do you like about its management?
Jamie Odell helped to turn the business around by focussing on its core strengths. This included the inherent value in its library of games and how to best exploit and monetise them. He identified the importance of the recurring revenue segment as being more valuable in driving consistent earnings.
What is your target price on Aristocrat?
$8.50, but that would move higher if the Australian dollar continues to fall.
At what point would you sell it?
Other than a significant appreciation in the share price, an unexpected downturn in US growth and the US dollar would see us lighten. Regulatory changes, while unanticipated, in key selling regions would also be a negative catalyst. Also a loss of product momentum and ship share would be a time to sell.
How much has it added to your overall portfolio over the last 12 months?
It has added over 1% to portfolio performance in excess of the market.
Is it a liquid stock?
Yes, it is in the top 100 largest stocks listed on the ASX and turnover recently has been in excess of $10 million per day.
Where do you see the value?
It has technology leadership in a growing market. It has a relatively stable earnings base from participation games with blue sky potential from an eventual replacement cycle in the US market and further growth in mobile and online gaming apps.
Aristocrat Leisure
Source: Yahoo!7 Finance, 12 March 2015
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