Aristocrat Leisure Limited

Focus on Expanding Addressable Markets: Aristocrat Leisure Limited (ASX: ALL) is primarily engaged in the design, development and distribution of gaming content, platforms and systems, including electronic gaming machines, casino management systems and digital social games. The company recently updated that Trevor John Croker, one of the Directors, acquired 15,901 fully paid ordinary shares and disposed 24,039 Deferred STI Performance Share Rights. In another recent announcement, the company nominated Philippe Etienne as a Non-Executive Director on the Board. He has worked with multiple organisations, including Innovia Security Pty Ltd, Orica Limited, Lynas Corporation Limited, and Cleanaway Waste Management Limited.

1HFY19 Highlights: During the first half ended 31 March 2019, the company continued to achieve strong momentum across recurring revenue in the Americas. This was driven by growth in Class II and Class III gaming operations footprint on the back of top performing content and hardware. Outright sales performed well with the successful move into new adjacent markets and performance of HelixXT™ and HelixTower™.

In ANZ, the company achieved further growth in a mature market on the back of customer-focused product offering. Improvement in efficiency and expansion of commercial models led to an expansion in margins across the region. Lower revenue and profit were reported for the International Class III business due to the continued focus on new casino openings and shifts in product-mix during the prior year.

During the first-half, operating revenue amounted to $2,105.3 million, up 29.8% on prior corresponding period revenue of $1,622.0 million. EBITDA for the period stood at $766.3 million, up 19.2% on pcp. Normalised profit after tax and before amortisation of acquired intangibles (NPATA) stood at $422.3 million, representing a growth of 16.8% in reported terms and 7.7% in constant currency. The company paid a fully franked dividend of 22.0 cents per share, up 16% on pcp.


1HFY19 Financial Highlights (Source: Company Reports)

Outlook: By late 2020, the company is expecting its presence across 96% of the Outright sale market and 80% of the Gaming Operations market, through investment into adjacent market opportunities.The company entered the Video Lottery Terminal market for Outright Sale in FY19 with sales into Atlantic Lottery Corporation (ALC) and Manitoba and is planning to enter 2-3 new provinces in FY20.

Stock Recommendation: The stock of the company generated a positive YTD return of 50.14% and is currently trading close to the upper band of its 52-week trading range of $20.660 - $32.610.As mentioned in the outlook, the company is continuously working towards the expansion of its addressable markets through investment into adjacencies. EV/EBITDA multiple of the company stands at 14.6x as compared to the industry median of 7.9x on TTM basis. Price to earnings multiple for the company stands at 31.91x, well above the industry median of 12.8x. Given the backdrop of the above factors, we have a watch stance on the stock at the current market price of $31.470, down 0.474% on 01 November 2019 and suggest investors to wait for better entry levels.

Goodman Group

Strong Portfolio Performance and Development:Goodman Group (ASX: GMG) is a globally integrated property group. The Group owns, develops and manages industrial property and business space in key markets. The company recently updated that the 2019 Annual General Meeting will be held on 20 November 2019.

FY19 Financial Highlights:During the year ended 30 June 2019, the company reported an operating profit of $942.3 million, up 11.4% on prior corresponding year. Operating earnings per share were reported at 51.6 cents, up 10.5% on FY18. Statutory profit for the year stood at $1,628 million, representing an increase of 48% on the previous year.


FY19 Results Summary (Source: Company Reports)

Operational Highlights: Total Assets under Management stood at $46.2 billion, up 21% on FY18. Strong property fundamentals during the year resulted in an occupancy rate of 98% and like-for-like net property income growth of 3.3%. Development work in progress (WIP) across 55 projects in 13 countries was valued at $4.1 billion and is expected to deliver yield on cost of 6.6%.

Guidance: In FY20, the company is expected to generate an operating profit of $1,040 million, representing a growth of 10.4% on FY19. Operating EPS for the year is forecasted at 56.3 cents, up 9% on FY19. Distribution for the period is estimated at 30.0 cents per security.

Stock Recommendation: The stock of the company generated a return of 34.74% on YTD. Currently, the stock is trading towards the upper band of its 52-week trading range of $9.990 and $16.100.On the valuation front, the stock is available at an EV/EBITDA multiple of 24.5x as compared to the industry median of 12.4x. The stock is trading at EV/Sales multiple of 16.7x, which is higher than the industry median of 5.7x. The stock has a price to earnings multiple of 16.010x, higher than the industry median of 14.8x. Looking at the above factors, we are of the view that the majority of the positive factors have been discounted at the current juncture. Hence, considering aforesaid facts and current trading levels, we give an “Expensive” recommendation on the stock at the current market price of $14.370, down 0.139% on 01 November 2019.

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