Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
Aristocrat powers through the pandemic despite closure of casinos
Aristocrat Leisure (ASX: ALL) – Australia’s leading gaming and technology company has released its half-year results, for the six months to 31 March 2021. And its results didn’t fail to impress.
While the pandemic caused mayhem to physical casinos such as those operated by Crown Resorts (ASX: CWN), online casinos moved in to fill the gap, with revenue numbers skyrocketing as people continued their gambling activities from within the confines of their homes.
Bricks-and-mortar casinos and gambling venues were left in the dark. According to Aristocrat’s HY results, “Normalised profit after tax and before amortisation of acquired intangibles (NPATA) of $411.6 million, represented an 11.8% increase in reported terms compared to the prior corresponding period (PCP), largely driven by growth in Digital.”
Aristocrat’s NPAT fell 73.5%, to $346.5 million, compared to more than $1.3 billion last year. The fall was due to a 31.4% reduction in operating cash flow. Thinking well ahead, the company invested some of this money ($242.7 million) in game design and development as part of its “refreshed growth strategy and unrelenting commitment to exceptional market-leading product portfolios.”
In turn, the company saw a 44% rise in purchases for online activities, as gamers switched to their digital devices. The company is doing so well that it announced an interim dividend of 15 cents, after not paying a dividend at the half-year stage in 2020.
The company has two main segments from which it generates revenue: Aristocrat Gaming Products and Aristocrat Digital.
Aristocrat Gaming Products refers to the gaming software used in physical electronic gaming machines in casinos and venue floors around the globe. This includes slot machines, blackjack, craps, roulette, and ‘house-banked’ card games. Total gaming revenue for the full calendar year was down 14.2%, while EBITDA was down 13.1%, from $672.1 million to $584.2 million.
The company said, “results were supported by stronger than expected consumer sentiment and economic conditions in the United States and ANZ region.” Due to the pandemic, Aristocrat has so far stood down 1,000 workers, cut 200 jobs, and transferred another 200 full-time positions to part-time roles, as other casino operators in the space have also done. Overall, revenue from land-based operations is mostly stable, but volumes in gambling terminals sales fell by 10%.
Aristocrat Digital was the star performer as people moved to online gaming, after casinos and pokies venues shut their doors. Revenue for the digital segment rose 28.8%, to $895.8 million, in the six months to March; ALL attributed its growth in sales to a $242.7 million investment in game design, development, and technology in the first half.”
The company’s comments highlighted the digital division’s performance: “Outstanding growth driven by portfolio performance and strong demand, growing market share in Social Casino genre, and impressive profitable growth and scaling of world-class games in RPG and casual merge segments. Digital revenues and bookings up 29% driven by continued scaling of recently launched games and ongoing investment in portfolio.”
Outlook
Aristocrat is one of the few companies that were able to foresee how the pandemic-forced lockdowns would affect its target market and then accurately transition its business towards a digitised model so that not only would its business survive, but it could grow and thrive in a new world.
According to a report released by Goldman Sachs, “digital continues to deliver better-than-expected results, and was 6%-9% better than (GS’ estimates) across sales/segment profit respectively (we were above consensus on digital). The balance sheets remain robust, with net leverage now down to 1.2 times (vs. 1.4 times in FY20), and the group notes that it has in excess of $2 billion of liquidity as at Mar 2021, allowing it to preserve full optionality for additional investments to accelerate its strategy.” The broker has a “buy” recommendation, with a target price of $42.30, against the market price of $41.05.
With a massive war chest and superior market-leading position having transitioned into digital gaming, Aristocrat is in an enviable position. As CEO and MD Trevor Croker puts it: “We enter the second half of fiscal 2021 with excellent momentum, resilience and confidence with a strong balance sheet to continue to invest organically to grow share and accelerate growth through M&A in line with rigorous criteria.”
There is even talk that Aristocrat has been conducting a cashless gambling technology trial to combat problem gambling and money laundering. It is trialling cashless payment solutions to deliver a complete digital experience for patrons. Cutting-edge tech innovation and its ability to be ahead of its competition are reasons why Aristocrat continues to succeed.
“Aristocrat believes that enabling cashless payment solutions is an innovation that may help enhance the long-term sustainability and vibrancy of our industry,” Croker said.
