Aristocrat Leisure

Aristocrat Leisure’s full-year result is slightly confused by its change of year-end to 30 September. And it only tells us so much, because we’re now more than half-way through the crucial December quarter, which generated around two-thirds of annual profit in 2010 and 2011.

Nevertheless, it was good to see the net profit for the year to September rising 69% to $91.7m, ahead of the company’s $85-90m guidance range. Earnings per share rose a similar amount to 16.7 cents. The company announced a final unfranked dividend of 2 cents (ex date 3 Dec), noting that the total payout ratio for the 9 months to September was 73%, slightly higher than its stated intention of maintaining a range of 50-70%.

The star performer was Japan, which was behind a 67% rise in net profit for the ‘Rest of the World and Japan’ reporting segment to $79.6m on a 30% increase in revenue. But the Japanese pachislot market is highly volatile and, although the improvement is impressive, profits can disappear here as quickly as they appear.

However, Australia and New Zealand and the Americas also achieved strong growth, with net profit up 27% and 21% respectively, and this adds more weight to the turnaround story.

A couple of acquisitions by Aristocrat have also caught our eye recently – of a platform to run online casinos and for a provider of slot machine and other games on Facebook. With names like Hollywood Spins and 3D slots, the Facebook games look very involved and the graphics look very rich. I almost had a go – except it said it was going to make a note of all my personal details, including my list of friends, and in any case I’m more than a little worried I’d get hooked. If you don’t hear from me for a few weeks you’ll know what’s happened.

It seems likely that gaming machines will become increasingly integrated with the internet and/or social media, so it’s good to see Aristocrat moving in this direction. And the timing looks sensible, with the company not entering the markets as a first mover, but with the more measured approach of buying up the early successes.

The stock is up 1% since our review of the interim result on 29 Aug 12 (Long Term Buy – $2.76) and, while noting that the stock is around the top end of the relevant range in our price guide, we’re happy to stick with LONG TERM BUY.

Note: The Growth portfolio owns shares in Aristocrat Leisure.