Aristocrat Leisure (ALL) Share Trading Update

Submitted by Craig Strzelecki on 20 February, 2007 - 15:57

Aristocrat Leisure (ALL) have a reiterated Outperform recommendation from analyst Macquarie Research Equities (MRE). According to the analyst, there was slight disappointments on a divisional level relative to MRE forecasts, the result was broadly in line with consensus. Any weakness in the stock will present great buying opportunities considering the stellar growth expected from this company in FY07 and FY08. There may have been a buying opportunity following the ALL price slump of 3 percent in morning trade. The gaming company announced a FY06 result of $239m versus Macquarie Research Equities’ (MRE) forecast of $254m. The result was in line with the mean forecast of $239.5 million but the stock has been sold down following a decline in sales from the Japanese division on regulatory delays in approving new games. MRE believe today's weakness presents a great buying opportunity and accordingly reiterate their outperform recommendation. The result of $239m was weighed down by a large commitment to R&D of $95.2m which was $10m ahead of forecast. MRE are very comfortable to see an increasing R&D spend so that ALL can maintain its competitive edge. MRE have noted the following observations by division:

US: The US delivered a segment contribution profit of $252.4m up 38% on pcp and 7% below MRE’s forecast. As expected, the US reported a massive margin lift in 2H06. Margins in 2H06 were 44% up from 35% in the pcp. On the outlook for this division, management expect it will continue to grow based on new jurisdictions and uplift in the replacement cycle. Management also expect further margin improvement.
Australia: Revenue growth was +2% to $276.2m, with segment contribution growth of +3% to $109.7m on a margin of 39.7%. The market appears to remain challenging, with operators uncertain as to the regulatory environment going forward (progressive smoking bans, ticket-in-ticket-out, etc.). The replacement cycle in the second-half improved slightly from what have been historic lows. Sales were driven by a range of new titles.
Japan: As expected, revenue declined to $50.4m (but ahead of MRE’s $37.1m estimate) from $373.7m in the pcp. Segment contribution profit was a loss of $5.6m, compared with a profit of $88.0m in the pcp. The segment loss includes an inventory charge of $7.4m relating to unsold K3 games.

Aristocrat Leisure Limited is listed on the Australian Stock Exchange (ASX) under stock code ALL. You can view their investor website here. ALL was listed on the ASX on 9 July, 1996. This company designs, develops, manufactures and markets gaming machines, gaming systems and other gaming equipment and services. David Simpson is the chairman for Aristocrat Leisure and the managing director is Paul Oneile. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade ALL. Check your charts and good luck with your share trading!