Five Stocks In The Gambling Sector

 

Aristocrat Leisure Ltd

ALL Dividend Details
 
Driving growth via high quality gaming focus and acquisitions: Aristocrat Leisure Limited (ASX: ALL) delivered outstanding first half of 2015, with revenues surging by 73.5% year on year (yoy) to $685 million, driven by its VGT integration coupled with rising contribution from the Digital gaming and Class III premium gaming operations. Accordingly, ALL’s operating cash flow rose over 66% yoy to $101.4 million in 1H15. The group has more than 2,100 patents and 2,900 trademarks and also built a diversified revenue base. Despite tough market conditions, the group was able to improve its share and average selling price growth in the North American outright sales segment, while continued to be a leader at Asia Pacific driven by solid Macau openings. Aristocrat Leisure continued to focus on high quality gaming content, and accordingly, invested in its Research and Development efforts. North American gaming operations remains a priority market for Aristocrat and is targeting growth by further penetration.
 

ALL’s strategic priorities to tap the current market opportunities (Source: Company Reports)
 
The group also has a solid recurring business which represented over 47% of the overall group’s revenues in the first half, while increased more than double as compared to prior corresponding period. Meanwhile, the shares of Aristocrat Leisure surged over 47.41% during this year to date while rallied over 5.45% in the last four weeks (as of November 23, 2015). We believe that this positive momentum in the stock would continue further given its improving North America share and ongoing domestic market performance. However, the stock is trading close to its 52-week high price. Based on the foregoing, we give an Expensive recommendation for the stock at the current price of  $9.54
 

 

Tabcorp Holdings Ltd

TAH Dividend Details
 
Improving Results: Tabcorp Holdings Ltd (ASX: TAH) generated a year to date returns of over 19.85% (as at November 23, 2015) driven by its solid FY15 performance with over 157.5% yoy increase in its Statutory Net Profit After Tax to $334.5 million. On the other hand, many speculations were swirling around the stock with regards to the potential merger with Tatts Group, but TAH recently reported that the talks on the merger have failed. There is speculation about TAH’s future attempt with regards to merger or acquisition of Tatts’s wagering business. Meanwhile, TAH has been improving its performance across the segments and reported a return to the racing industry rising by 5.2% yoy to $773 million during the FY15 while gambling taxes improved by 4.6% yoy to $460 million in FY15. TAH integrated ACTTAB into its operations as well as finalized NSW and Victorian thoroughbred media rights arrangements during the year.
 

First quarter of 2016 performance (Source: Company Reports)
 
Tabcorp’s focus on innovation coupled with ongoing integration of retail, digital and media assets drove its first quarter of 2016 performance as well, with total Wagering turnover improving. The group’s ongoing venue performance and expansion efforts drove its Gaming Services revenues by 5.2% yoy to $26.4 million during the first quarter. Keno revenues also enhanced by 2.8% yoy to $55.8 million, driven by the group’s brand and product transformation, jackpot pooling in Queensland as well as digital strategy implementation. TAH has more than 9,400 gaming machines as of September. TAH also targets to reach a ROIC of 14% by fiscal year of 2017. At the same time, risks related to increasing competition in the wagering industry with changes in racefields product fees and regulatory environment cannot be ignored. We believe that the stock is expensive at the current price of $4.59
 
 

Star (Echo) Entertainment Group Ltd (ASX: SGR)

SGR Dividend Details
 
Rebranded to maintain a uniform identity: Echo Entertainment Group Ltd (ASX: EGP) has recently rebranded itself as “The Star Entertainment Group”, the Star Entertainment Group Ltd (ASX: SGR)to give a uniform identity across its properties at Sydney, the Gold Coast and Brisbane. Echo Entertainment or The Star Entertainment Group’s actual gross revenue rose by 19% yoy to $2.26 billion in the fiscal year of 2015, and generated an International VIP Rebate business actual revenues with 48.4% yoy rise to $588.4 million in fiscal year of 2015. SGR delivered a statutory EBITDA and normalized EBITDA increase of 17% yoy and 24% yoy to $451 million and $521 million, respectively. Despite tough market conditions, the group was able to deliver a domestic gaming revenue (excluding International VIP Rebate) increase of  10.3% yoy during YTD of fiscal year of 2016 while the overall domestic business, with non-gaming but excluding International VIP Rebate, improved  by 8.7% yoy in FY16 YTD. Meanwhile, SGR has a pipeline of projects wherein the Jupiters Gold Coast redevelopment of the $345 million first phase restoration is over while phase 2 development is on progress. For the Jupiters Gold Coast redevelopment, SGR expects to incur a capex of $100m – $125m in FY16.
 

Financial performance (Source: Company Reports)
 
The group intends to invest over $500 million on its Star Sydney projects for the next five years, and forecasts a capex of $150 m – $175m in FY16. SGR is working with the Queensland Government and with its Brisbane destination consortium partners to develop the Queen’s Wharf Brisbane project. SGR intends to boost its bottom line while developing its Jupiters Gold Coast redevelopment project and implement the Star master plan strategy in Sydney. The shares of EGP delivered a solid year to date returns of 30.63% (as of November 23, 2015). However, the stock is trading at a high PE ratio while having a low dividend yield. Based on the foregoing, we give an Expensive recommendation to this stock at the current price of  $4.88

 

Ainsworth Game Technology Ltd

AGI Dividend Details
 
New products launch coupled with improving North American opportunity to boost growth: Ainsworth Game Technology Limited (ASX: AGI) recently acquired entire stake in Nova Technologies for US$38 million to boost its North American market opportunity. With this acquisition, the group’s total machines in North America would increase to over 4,400 units. Meanwhile, Ainsworth Game Technology international business performed well with revenues rising 46% yoy to $147.6 million, leading to a better segment’s share in overall revenues to 61% in FY15 from 41% in FY14. North America’s growing market share coupled with new markets contribution led to 42% yoy revenue rise to $82.8 million during FY15. Management reported that its a560SL™ release with game brands like Sweet Zone™ and Whopper Reels™ performed better than expected. The group’s new facility opening in 2016 at Las Vegas would further improve the performance. Although, the company has given out a flat PBT guidance at its AGM for 1H16 and FY16 over pcp, but indicated for good growth in international markets to deliver strong sales growth in FY16 with sales momentum across all regions and domestic ship share gains.
 

Sales and Profit by Region (Source: Company Reports)
 
AGI targets a better domestic business during FY16 via its August release A600™ (the group’s revenues decreased by 1% yoy to 240.6 million in the fiscal year of 2015). With Ainsworth stock falling over 15.53% in the last six months (as of November 23, 2015) and 8.72% in the last four weeks, we believe AGI is trading with a modest P/E of about 12x. We remain bullish on this stock and accordingly give a “BUY” recommendation on AGI at the current stock price of  $2.64
 
 

 

Crown Resorts Ltd

CWN Dividend Details
 
Efforts to revamp growth despite tough market conditions: Crown Resorts Ltd (ASX: CWN) stock plunged over 3.86% (as of November 23, 2015) during this year to date impacted by the poor fiscal year of 2015 performance, with its NPAT declining over 17.9% yoy to $525.5 million. Although gaming revenues from Melbourne and Perth delivered better results, Melco Crown’s gaming revenue pressure and asset impairments contributed to poor performance. Accordingly, the group incurred asset impairments of $61.3 million during FY15 while reported EBITDA declined over 11.4% yoy to $778.1 million in FY15. Crown’s share of Melco crown’s normalized NPAT reached $161.3 million in FY15, which is down by $129.9 million or 44.6% yoy, impacted by the weak gaming revenue across the Macau market due to tough market conditions in Macau. On the other hand, the group has been focusing cost efficiency efforts due to which its normalized EBITDA improved by 17.8% yoy while the group’s Perth normalized EBITDA rose by 5.3% yoy. Crown Melbourne’s main floor gaming revenue increased by 6.9% yoy while Crown Perth’s gaming revenue delivered only 2.6% yoy increase. Australian resorts revenue rose by 14.0% yoy to $3,209.2 million in FY15, driven by Main floor gaming revenue increase of 5.5% yoy to $1,588.6 million. VIP program play turnover delivered 41.8% yoy improvement to $70.8 billion. Crown is pursuing all options to revamp its growth and intends to further drive the VIP play turnover. The group recently acquired 20% interest in Nobu for USD 100 million to complement its existing resorts. Crown’s Australian resorts business would benefit from the exclusion of Super Tax on VIP program play at Crown Melbourne.
 

Investment in Large Scale Tourism Attractions (Source: Company Reports)
 
Additionally, tax rate cut of VIP program play from 12% to 9% at Crown Perth would further boost the group’s Australia’s business. Melco Crown’s entertainment-focused Studio City project, might boost its Asian performance in the coming periods. Crown resorts surged over 5.35% in the last five days (as of November 23, 2015) and we remain bullish on this dividend yield stock and reiterate our “BUY” recommendation at the current price of $11.92
 
 

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