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The $25 billion pokies giant playing on tech
By Colin Kruger
Aristocrat Leisure is the big title behind the headlines when speak turns to Australia’s addiction to poker machines.
“Aristocrat, with its 50 per cent market share, is the gorilla behind the scenes, and the clubs and pubs are those out in front,” shareholder activist Stephen Mayne instructed Aristocrat buyers in February as part of his failed pitch to affix its board.
Aristocrat’s pokies enterprise continues to be a jackpot for traders.Credit: Peter Braig
However the pokies producer has been spending a large a part of its playing jackpot constructing up a business in the digital world far removed from the stench of the pubs, clubs and casinos.
This began in 2006 with the acquisition of Scandinavian begin-up EssNet Interactive to exploit the rising world marketplace for server-based mostly video lottery product offerings.
“This is a key opportunity for us to enter a segment of the worldwide gaming market by which we don’t at present compete,” Aristocrat’s chief government at the time, Paul Oneile, stated.
With a market valuation of more than $25 billion and the shares testing report highs over the previous 12 months, has the group’s huge guess paid off?
Business: Playing
Main products: Poker machines (digital gaming machines) and gambling applications for cellphones and casinos.
Key figures: Len Ainsworth nonetheless casts a shadow, but the primary gamers these days are veteran chief government Trevor Croker, who has notched up eight years in the top job, and chairman Neil Chatfield.
How it began: Company founder Len Ainsworth made his name as a legend of the pokies business at Aristocrat. This business has remained a jackpot for traders for many many years, pushed by its addictive “high impact” machines that dominate NSW and Victorian pubs and clubs with doubtlessly enormous, but unstable, jackpots.
How it’s going: Over the past 17 years, Aristocrat has slowly armed itself with a brand new array of products targeting the mobile gaming market and now on-line gambling.
In 2021, it bundled a string of these acquisitions underneath one roof as a cell sport division with $1.8 billion in revenue and known as it Pixel United.
More just lately, there is the proposed acquisition of Neogames for $US1.8 billion ($2.Eight billion) in fairness and debt to purchase its manner into the net lottery market which supplies solutions and services to nationwide and state-regulated lotteries.
The bigger play for Aristocrat is the so-called RMG (real money gaming market) that offers a whole vary of gambling services to digital casinos, lotteries and sports activities betting sites throughout the quickly developing US playing market.
But the group’s latest monetary consequence demonstrates the value, and resilience, of its conventional market of pokies – punters sitting in front of one among its machines with a beer in hand.
While Pixel wilted in the post-COVID lockdown world, pokies continued to boom for the half-year ending March 31 this 12 months, powering a 12 per cent rise in income to simply over $3 billion whereas net profit soared 17 per cent to $619 million.
Pixel reported a 7 per cent decline in income and 16 per cent decline in net profit. It was hit by a quantity of factors together with a post-COVID problem as the ending of lockdowns gave clients much more options for his or her leisure time.
Fortunately for Aristocrat, this included punters returning to reopened casinos, which have prospered accordingly.
As Croker places it, it’s the advantage of a diversified business with a “land-primarily based gaming” [pokies] enterprise, mobile gaming, or its new venture with the proposed acquisition of Neogames.
“We believe this may actually be transformational for Aristocrat,” Croker says.
The bull case: Macquarie is bullish with a $46.50 worth target for a stock buying and selling round $38.Forty on its power within the pokies market – including rising revenue margins as provide chain pressures ease – and the potential progress choices with Neogames.
“Importantly, we continue to have high conviction with earnings upside, particularly with Anaxi paring losses within the second half of the 2023 financial 12 months,” Macquarie says.
Morgan Stanley also remains bullish with a $forty three value goal despite the underperformance of Aristocrat’s digital business.
The bear case: All the expansion options that Neogames may provide won’t be worth anything if it can’t land the deal, and meanwhile nobody sees any silver lining to the woes at Pixel, which at the moment accounts for one-third of the group’s profit.
Morningstar Fairness Analysis, another Aristocrat fan – based mostly on its pokies enterprise – is dour in regards to the immediate prospects for Pixel.
“Competition for attention is up, and we do not think Aristocrat has carved a aggressive benefit in the mobile gaming space, which is extremely competitive,” Morningstar’s Angus Hewitt says.
“We anticipate progress will show more durable to come back by moving ahead and forecast phase growth, [and] working earnings progress slowing to around 2 per cent per yr to fiscal 2027.”
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