Aristocrat Leisure Limited (ALL) is an Australian gambling machine manufacturer within the consumer discretionary sector. The company develops, assembles, sells, distributes and services games and gaming systems. ALL has a large presence in Australia, the US and internationally, with potential long-term growth opportunities in Asia. “We continue to be encouraged by the prospects for Aristocrat, which has a portfolio of very highly regarded electronic gaming machines in an industry, with significant barriers to entry,” Michael said.
An area where the company has invested heavily in recent years is the diversification away from physical gaming machines and into the online and mobile gaming markets, and according to Michael Wayne, MD of Medallion Financial Group, this digital focus is continuing. “Off the back of this success and rapid growth, the digital business has been transformed in recent times, underpinned by the acquisitions of Plarium for US$500 million, in the social gaming space and Big Fish in the social casino and social gaming space for US$990 million,” Michael said.
The social casino market is estimated at $4.5 billion and the social gaming market at $45.9 billion. “The market opportunity in these areas is of particular interest. The increase in scale is key to capturing a large portion of this market, which has high levels of recurring revenue and strong margins,” Michael said.
“Overall, however, casino revenues have proven more resilient than expected, which is supportive of the medium-term outlook for the company. While unit sales for the company are estimated to be down -60% – 70% year on year, this is actually better than expected,” he added.
“For the first nine months of FY20 and ALL appears to be demonstrating its resilient qualities with all aspects of the business progressing ahead of restated COVID expectations. As it stands social casino revenue is up 26%, while social casual is up 36% rounding off gains in market share, both in land-based games and in the digital space.”
Chart 1: ALL
Coronavirus impact & opportunities
“While land-based gaming revenues fell 6%, we’d expect this side of the business to bounce back quickly post-COVID, while the mobile gaming side of the business should continue to pick up the slack in the meantime,” Michael said.
“When looking at the long-term picture, it appears that COVID has actually provided Aristocrat with the ability to take market share from smaller competitors, who have quickly become more focused on staying afloat than driving business growth.”
“For instance, at the recently announced 2Q20 results of UK listed IGT and the US-based SciGames, it is clear that the respective management teams are cutting back heavily on capex and R&D in order to preserve liquidity as they swing to losses,” Michael maintained.
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