Aristocrat Leisure Limited

ALL Details
 
COVID-19 Update: Aristocrat Leisure Limited (ASX: ALL) is involved in designing, manufacturing, developing, and marketing of various range of products and services, which include electronic gaming machines, casino management systems and digital social games. The market capitalisation of the company stood at ~$15.07 Bn as on 20th April 2020. In a recent update, the company stated that given the current uncertainty owing to coronavirus led crisis, it has withdrawn its FY20 outlook. Nonetheless, the company is taking necessary measures to ensure the health and wellbeing of staff and their families amid COVID-19 outbreak. In addition, the company is putting restrictions on travel and encouraging social distancing measures along with work from home facility.
 
FY19 Key Financial Highlights: In FY19, the company’s operating revenue amounted to $4,397.4 million, up 22.7% on prior corresponding period revenue of $3583.8 million. EBITDA for the period stood at $1596.8 million, up 20.2% on pcp. Normalised profit after tax and before amortisation of acquired intangibles (NPATA) stood at $894.4 million, indicating a growth of 22.6% in reported terms and 13.9% in constant currency. Digital revenues were up 24% year over year and accounted for ~41% total group revenues. The increase can mainly be attributed to scaling of new titles and benefit of acquired businesses. The company paid a fully franked dividend of 56 cents per share, up 21.7% on pcp.
 
 
 

Financial Performance (Source: Company Reports)
 
Valuation Methodology: P/E Multiple Based Relative Valuation

 
P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of the company generated a positive one month return of 10.69% and is currently trading below the average of its 52-week low-high trading range of $14.81 - $38.23. The company has a P/E ratio of 21.53x, with dividend yield of 2.37%. In FY19, ALL reported gross margin and EBITDA margin of 55.2% and 36.8%, which is higher than the industry median of 51.8% and 25.7%, respectively. We have valued the stock using P/E multiple based illustrative relative valuation method and, for the purpose, we have taken peers such as Star Entertainment Group Ltd (ASX: SGR), Tabcorp Holdings Ltd (ASX: TAH), and Skycity Entertainment Group Ltd (ASX: SKC). As a result, we have arrived at a target price with a limited upside (in percentage terms). Therefore, considering the current trading level, and current uncertainty owing to coronavirus led crisis, we have a watch stance on the stock at the current market price of $23.36 per share, down 1.017% on 20th April 2020.

 
ALL Daily Technical Chart (Source: Thomson Reuters)

Ainsworth Game Technology Limited

 

AGI Details
 
Business Update Amid COVID-19 Crisis: Ainsworth Game Technology Limited (ASX: AGI) is engaged in designing, developing, and manufacturing of gaming machines. The market capitalisation of the company stood at $151.56 million as on 20^th April 2020. Recently, the company provided an update in response to the coronavirus outbreak. Consequently, the company is witnessing decrease in expected capital expenditure from customers on gaming machines and a reduction in overall revenues in all markets. AGI predicts these uncertainties to continue throughout 4QFY20. Henceforth, given the current scenario, the company has withdrawn FY20 outlook.
 
AGI Completes MTD Buyout: In another update, the company announced that its subsidiary, Ainsworth Game Technology, Inc., has completed an asset acquisition of MTD Gaming Inc., with an initial consideration of US$13 million, along with an additional US$13 million of deferred consideration, which will be paid on effective delivery of financial objectives and contract renewals.
 
Key Takeaways for 1HFY20 Period Ended 31 December 2019: During 1HFY20, the company reported revenue amounting to $107.3 million, down 9% year over year. Loss after tax stood at ~$4 million. Underlying EBITDA for the period stood at $18.5 million, down 28% year over year. Total assets amounted to $477.9 million in 1HFY20, as compared to $461 million reported in the year-ago period. Net asset stood at $389.9 million.
 

Key Financial Highlights (Source: Company Reports)
 
What to Expect: The company remains confident on driving enhanced long-term growth by focusing on R&D and combining organic performance with selective purchases to bring in financial efficiencies.
 
Valuation Methodology: Price to Earnings Multiple Approach
 
Price to Earnings based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of the company has corrected ~45.12% in the last six months and is currently trading below the average of its 52-week low-high trading range of $0.330 - $0.880. In 1HFY20, AGI reported gross margin of 61.5%, which is higher than the industry median of 55.7%. Current ratio of the company stood at 5.62x in 1HFY20 as compared to the industry median of 1.03x. This reflects that the company is in a decent position to address its short-term obligations as compared to the broader industry. Debt to equity multiple of the company stood at 0.12x in the same time period against the industry median of 0.51x. We have valued the stock using P/E multiple based illustrative relative valuation method and, for the purpose, we have taken peers such as Aristocrat Leisure Ltd (ASX:ALL), Star Entertainment Group Ltd (ASX: SGR) and Tabcorp Holdings Ltd (ASX: TAH). As a result, we have arrived at a target price with lower double digit-upside (in percentage terms).Therefore, considering the above factors, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.45 as on 20th April 2020.
 
 
AGI Daily Technical Chart (Source: Thomson Reuters)

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