Aristocrat Leisure Limited (ASX: ALL)

Increase in Corporate and Interest Cost: Gaming player, Aristocrat Leisure Limited’s (ASX: ALL) stock rocketed 8.02 per cent on 24 May 2018 after the company delivered very strong financial results for the half year ending on 31 March 2018. The Group focuses on successfully integrating its new digital businesses, while accelerating collaboration, in order to fully leverage its deepening digital and land-based capabilities. Normalised profit after tax and before amortization of acquired intangibles (NPATA) of $361.5 million represented a growth of 32 per cent in reported terms and 36 per cent in constant currency as compared to the $273 million of the same period in the prior year. It was due to strong growth in the Group’s Americas and Digital businesses which included the recent acquisitions of Plarium and Big Fish, together with a further lift in performance in the ANZ region. The Board declared an interim fully franked dividend of 19.0 cps (A$121.3million) and this will be paid on 3 July 2018.


NPATA Performance (Source: Company Reports)

The Group generated a cash flow of $302 million for the period and reflected the Group’s strength of its recurring revenue profile. Moreover, its net gearing reduced to 2.0 times at 31 March 2018, from 2.2 times which was announced in November 2017 (at the time of announcement of the Big Fish acquisition) and this was driven by an improvement in operating performance across the business as a whole which included recent digital acquisitions. The Group indicated for a double-digit NPATA growth and expects to grow over the twelve months to 30 September 2018 as compared to the 2017 full year result. It will continue to push for growth by increasing its strategic investment in design and development, in order to protect and extend market leading positions. Corporate costs and interest increased by $5.9 million after considering the incremental funding of acquisitions which was partially offset by lowering the one-off consulting costs and legal costs in the prior corresponding period. The stock climbed up by 37.33 per cent in one year and by 21.12 per cent in last six months. Despite the strong performance, the stock looks “Expensive” at the current market price of $30.08 as the stock is inching towards its 52-week high price.
 

The A2 Milk Company Limited (ASX: A2M)

Rise in marketing investment expected: The A2 Milk Company is the business that is related to producing, marketing and selling premium branded dairy nutritional products in targeted global markets. The Company’s continued growth reflects an increase in the consumer acceptance of its brand and is benefitting from the dairy-based products that are free from A1 beta casein protein type. It is uniquely focused on building a branded and differentiated business that is supported by an integrated IP portfolio and by growing scientific evidence. It has evolved from a pioneer to a global leader. It has moved from licensing to an operational business model, has developed regional business models in China, US and in UK, along with organisational depth and capability.


Group Revenue and EBITDA Growth (Source: Company Reports)

Meanwhile, it is accelerating and expanding in SE Asia and is further seeking market expansion opportunities. The Company is anticipating a broader interest in the A1 protein-free category and will deliver positive developments in the science. The Group has entered into a strategic partnership with Fonterra Co-operative Group Limited and it supplies A1 protein-free nutritional products in bulk and consumer packaged formats exclusively to a2MC. The Group expects group revenue to be in the range of NZ$900-NZ$920 million for the 12 months ending on 30 June 2018. It is expected that due to an increase in the expenditure primarily in US and in China in 2HFY18 as compared to 1HFY18, the marketing investment will now be in the range of NZ$82-NZ$87 million for FY18. In one year, the share prices were high and moved up by 187.93 per cent, followed by a drop of 20.99 per cent in last three months owing to some shortcomings and profit booking. The stock fell by 13.49 per cent in last five days but stock witnessed a recovery of 5.699 per cent on 24 May 2018. The stock was down over 5 per cent as on 23 May 2018 as Fonterra (a strategic partner of A2M) released its milk price forecasts which showed that the forecasted higher milk price would put pressure on Fonterra's earnings. With the above aspects, the stock looks “Expensive” at the current market price of $9.83.

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