Aristocrat Leisure Limited

17% Normalized NPATA Growth: Aristocrat Leisure Limited (ASX: ALL) is into manufacturing of gambling machine. The company is predominantly engaged in the development, design & distribution of gaming platform, content, and systems mainly through its North Ryde site. It offers a wide spectrum of products and services which include electronic gaming machine, casino management system, etc. The company exhibiteda strong financial performance in 1HFY19 with an easing off debt position and a positive outlook, going ahead. 

The Directors of the company authorised an interim fully franked dividend of 22.0 cents per share (A$140.5 million), up 16%, in respect to the six-month period ended 31 March 2019.  The record and payment dates for the interim dividend are 30 May 2019 and 2 July 2019, respectively. The Ex-date is 29 May 2019.


Earnings Summary and KPI 1HFY19 (Source: Company Reports)
 
On the financial front, the normalised profit after tax and before amortisation of acquired intangibles (NPATA) stood at $422.3 million for the period, representing a 17% increase(8% in constant currency basis) as compared to $361.5 million in the prior corresponding period. The normalised revenue increased by 30% (21% in constant currency) driven by growth in the Americas, ANZ, and Digital.

The net gearing decreased to 1.6x from 2.0x pro-forma leverage in the prior corresponding period, reflecting the company’s continued focus on cash management along with strong performance across the business. In 2014, ALL only participated in the Core Slot segment of Social Casino, which represented an addressable market of less than US$2 billion. However, through acquisitions of Plarium and Big Fish, the company is currently targeting a market opportunity of US$32bn.

What to Expect From ALL: As the company builds diversified Digital portfolio, it continues to expect some skewing of its earnings to the second half of the financial year, exhibiting the planned cadence of game releases and corresponding UA investment as previously noted. The company expects a further 100 - 150bps reduction in the Group’s effective tax rate over FY18. ALL expects further growth in Digital bookings supported by new game releases. In land-based Outright Sales, the company expects incremental gains in attractive North American adjacencies. Additionally, to maintain market-leading share positions across key for-sale segments globally including in the APAC region, the company has no major casino expansion plans in FY19.

Stock Recommendation: The stock has gained a decent return of 25.93% on YTD basis. EV/Sales for the company at 5.46x is at a higher level from the peer median of 2.02x. EV/EBITDA of 15.62x is also higher as compared to the peer median of 10.64x. Although the company had enjoyed a good first half in terms of financial performance, we believe that these performances are already being factored at current price level as it is trading at close to its 52-week higher level of $33.06 with PE multiple of 31.20x. Therefore, we give an “Expensive” rating on the stock at the current market price of $28.40 (up 7.089% on 23 May 2019).  
 

CSR Limited

Focussed on Growth & Innovation: CSR Limited (ASX: CSR) is engaged in the business of manufacturing and supplying the building products for residential and commercial construction in Australia and New Zealand. The company maintained a stable pay-out ratio along with the growth in EBIT margin and Returns on Fund Employed over the past 4-years and expects its strong operational cash flows to support future growth.
 
The company is determined to pay a final dividend of 13.0 cents per share, franked at 50%. This brings the full year dividend of 26.0 cents per share.
 

 
FY19 Performance Overview (Source: Company Reports)
 
The trading revenue stood at $2.3 billion, up 4% on the prior year following revenue growth in all businesses. CSR Limited has reported a net profit after tax from continuing operations (before significant items) of $181.7 million for the year ended 31 March 2019, down 14% with good operational performance in Building Products and Property offset by the expected decline in earnings from Aluminium following the significant step-up in electricity costs.

Segment Wise Outlook: For Building Products business segment, CSR is making changes to its operating footprint and overheads to reduce the impact on earnings. Housing activity driven by population growth, high employment and a stable environment for interest rates will support longer-term demand for CSR’s building products. While in the property segment, the quantum of earnings may fluctuate due to the timing of transactions, the ongoing development of several major projects will support the property earnings over the next ten years.

CSR’s strong operational cash flow will enable the company to undertake capital management and return surplus capital to its shareholders with the $100 million on-market share buyback launched in March 2019.

Stock Recommendation: With a YTD return of 40.07%, the stock performed well to generate substantial returns of ~33% over the period of the past six months. However, the Y-o-Y financial performance of the company experienced a marginal dip. With the stock trading relatively closer to its 52-week high price, we have a wait and watch stance on the stock at the current market price of $4.10 (up 5.67% on 23 May 2019).     

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