Aristocrat Leisure
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Good news has been in short supply for gaming machine manufacturer Aristocrat Leisure in recent years. But the recent watering down of federal independent MP Andrew Wilkie’s proposed ‘mandatory pre-commitment’ reforms is undoubtedly positive (see box in Aristocrat’s turnaround jackpot? from 28 Sep 11 (Speculative Buy – $1.98) for an explanation of mandatory pre-commitment).
Rather than legislate to introduce his reforms, the government has instead proposed a trial in the Australian Capital Territory in 2013. Manufacturers will be required to make new machines ready for mandatory pre-commitment from that date, although any national rollout would not occur before 2016.
In summary, Wilkie’s reforms are dead in the water. There will be a federal election by next year and whoever wins is unlikely to push for mandatory pre-commitment, whatever the results of the trial. Even if further reforms take place, Aristocrat might well end up a beneficiary given the need to upgrade machines.
Aristocrat’s share price has been strong as a result, up 20% this month, and 33% since 28 Sep 11. Also positive is that gaming revenues have shown improvement in US casino strongholds Las Vegas and Atlantic City, while other US states such as New York and Florida seem to be jumping on the casino-opening bandwagon.
We’re lifting the prices in our recommendation guides accordingly, although there’s still some risk that Aristocrat’s turnaround will be protracted (or end up stalling). The stock remains a SPECULATIVE BUY.
The model Growth portfolio owns shares in Aristocrat Leisure.
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