Aristocrat Leisure
Recommendation
Aristocrat Leisure reported today that first half net profit—before the change to its balance date outlined in Aristocrat starts to pay out on 4 May 12 (Hold – $3.13)—would be between $30m-$33m. Using the mid-point of the range, it implies first half profit will increase 27% on the $24.9m reported in the previous period. It’s pleasing to see profit growth headed in the right direction.
In spite of what seemed like good news, the share price slumped 11% in response. Market expectations are for a significant lift in profit this calendar year, and the 27% increase wasn’t considered significant enough.
But to focus attention on the first half profit number is to miss the point. Aristocrat’s half-yearly results can swing about depending on the timing of orders, while management made it clear in February that earnings would be ‘heavily weighted’ to the second half of the year. Importantly, Aristocrat has won contracts with recently opened casinos, including the Maryland Live! Casino in the US and Sands Cotai Central in Macau.
For Aristocrat to make $90m in net profit this calendar year—bearing in mind this number won’t be reported due to the balance date changes—it will need to produce $59m for the second half (up from $41m). This isn’t out of the question given the company’s improved game line-up and potential casino openings.
With the share price falling 22% since 4 May 12, the stock is once again below our recommendation guide price. Expect a full review from us over the coming weeks, but we’re upgrading Aristocrat to LONG TERM BUY for up to 3% of a risk-tolerant portfolio.