Aristocrat Leisure Limited

Strong Fundamentals: Aristocrat Leisure Limited (ASX: ALL) witnessed an initial share price fall of 1.7% on June 07, 2018 but ended with a slip of 0.2% at the end of the day. It seems that the sentiments on the stock are now fluctuating a bit. ALL recently disclosed its strong 1HFY18 performance wherein Normalised profit after tax and before amortization of acquired intangibles (NPATA) grew by 32 per cent and amounted to $ 361.5 Mn in 1HFY18 as compared to the previous corresponding period (pcp). This was mainly driven by strong growth in the Group’s Americas and Digital businesses, including the recent acquisitions of Plarium and Big Fish, together with a further lift in performance in the ANZ region. As a result, fully diluted EPSA surged up by 32.6 per cent to 56.6 cents per share in 1HFY18 from 42.7 cents per share in 1HFY17. Based on strong first-half year performance, the Board of Directors declared fully franked interim dividend of 19.0 cents per share which will be paid on 03 July 2018, representing dividend rise of 35.7 per cent as compared to previous corresponding period. On the other hand, operating cash flow (normalized) less capex declined by 38.5 per cent in 1HFY18 due to significant Australian tax payment following utilization of tax losses incurred during the same period. Moreover, the net change in working capital also increased during 1HFY18 at the back of rise in Americas receivables by $77 million, primarily due to timing of the product release schedule later in the period, compared to the prior corresponding period which included a concentration of openings and expansions in the first-half of the reporting period.


Cash Flow Statement (Source: Company Reports)

Apart from the above facts, debt to equity ratio increased from 0.99x to 1.93x while RoE decreased from 21.5% to 17.9% on pcp basis. However, the management stated that they maintained the credit ratings of BB+ from Standard & Poor’s and Ba1 from Moody’s. The group confirmed that it expects double-digit NPATA growth to continue over the twelve months to 30 September 2018, compared to the 2017 full year result and focusses on to reduce 300-basis point effective tax rate over the 2018 full year, compared to the PCP. Meanwhile, the stock price was up by 25.29 per cent in the past three months as on June 06, 2018, and is still trading at a slightly high P/E. We give an “Expensive” recommendation on the stock at the current market price of $ 29.860, considering rising competition, foreign exchange risk and high leverage which may impact operating activity for full-year performance.

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