Consumer Discretionary

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

Thu 10 Mar 22, 5:36pm (AEST)

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Key Points

  • Aristocrat has engaged contingency plans to mitigate business impacts from War in Ukraine
  • A new business unit will focus on the real-money gaming sector
  • Aristocrat believes it is “currently not viable” to operate in Russia

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.

What brokers think

Five major brokers cover Aristocrat Leisure Ltd.

The consensus is a Buy rating, with a $48.2 target price (34% upside potential).

Morgans expects the company to boost earnings in the future without Playtech.

The broker’s target price reduced from $52 following the failure of the Playtech takeover. But Morgans believes the move into the real-money gaming sector can be achieved without the British company. Morgans retained its Add rating, with a new target price of $48.

Ord Minnett: Now that the Playtech bid has failed, the broker believes Aristocrat could use the $1.3bn it raised from investors last year to fund another, cheaper acquisition.

Plenty of options are out there, the broker said. Aristocrat’s share slide on geopolitical concerns have improved the valuation.

The broker retained an Accumulate rating, with a reduced target price of $49.

Written By

Ben Seeder


Ben is a freelance contributing editor based in Tasmania. He has a Bachelor's Degree in Journalism and Government from the University of Queensland, and is a small-cap stock-picker.

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