Is Aristocrat a value-play following price pull-back?

Shares in Aristocrat Leisure Ltd (ASX: ALL) have rallied by around 7% since Tuesday, after appeasing market concerns for the safety of its 1000 Ukraine-based employees and any knock-on impact from the war on the business, especially to the company’s Pixel United mobile gaming unit.

Recent share price gains help to staunch recent losses following both the group’s failed bid for Playtech PLC - a UK-based online gambling and gambling software company - and more recently Russia’s invasion of Ukraine mid-February.

Contingency plans

Aristocrat has engaged contingency plans to mitigate business impacts and relocate some Ukrainian nemployees to Poland, where it will open a new office in Wroclaw, in the west of the country.

Aristocrat also said it was “currently not viable” to operate in Russia and has suspended its operations there.

Initial reactions

Analysts were positive after the announcement, with UBS saying the sell-off had wiped out the premium Aristocrat usually trades at.

UBS does not anticipate any major impact on earnings as a result of the Ukraine war, and it reduced its target price after the failure of the takeover offer for Playtech.

The broker maintains a Buy rating due to the sharp slide in Aristocrat’s share price on geopolitical concerns, with a new target price of $49.

While shares were trading up at $36.06 at the close on Thursday, they remain significantly down on the $44.34 they ended 2021 on.

New business unit: A mid-term focus

Following the failure of the Playtech bid, Aristocrat CEO Trevor Croker said a new business unit would be established to focus on the real-money gaming sector.

Real-money gaming, which is illegal in Australia and only legal in a handful of US states, could become a US$70bn market in the US alone if more states allow it.

Croker said the company would take a “build and buy” approach to real-money gaming, and this would be a “medium-term” focus requiring “sustained investment” over several years. 

Aristocrat which raised $1.3bn from its investors last year to fund the failed Playtech bid, still has plenty of cash on hand after repaying $500m in debt in February.