Aristocrat Leisure earnings resilience regardless of economic conditions is driving share price performance

About Aristocrat Leisure Limited

Aristocrat Leisure Limited (Aristocrat ASX:ALL) is a business with millions of playing customers that employs 8,500 people in 20 locations around the world with gaming products available in more than 300 licensed jurisdictions in 100 countries. Aristocrat’s global entertainment and gaming content creation business includes electronic gaming machines, casino management systems, free-to-play mobile games and online real money games, including iLottery. These activities are organised into three operating segments covering land-based gaming (Aristocrat Gaming), mobile games publishing (Pixel United) and regulated online Real Money Gaming (Aristocrat Interactive).

Earnings resilience supports strong share price performance

Aristocrat’s gaming division is the world’s leading designer, manufacturer and distributor of regulated land-based slot games and hardware and is the major earnings growth segment for the Group. It contributed A$1.8 billion in revenue and A$1 billion of Segment Profit representing 56 percent of Group revenue and 67 percent of Group profit for the half-year to 31 March 2024. The Segment was responsible for $140 million of the $189 million revenue lift and $96 million of the $194 million increase in Segment Profit of the Group. It was the North American Gaming Operations that drove revenue growth and this trend is likely to continue given the overall strength in the US economy and continued growth in the installed base of gaming machines.

Pixel United is Aristocrat’s free-to-play, mobile-first games with a focus on responsible games play. This Segment accounts for 41 percent of Group revenue and 31 percent of business Segment profit. Pixel revenue was down 2 percent for the half-year but contributed US$307 million profit at an impressive 35 percent margin on US$875 million of revenue.

The Group’s remaining business segment is Aristocrat Interactive and is the Group’s regulated online Real Money Gaming (RMG) business that delivers content and technology solutions for online RMG, including iLottery. Group revenue was US$72 million, and Segment profit was US$20 million for the half-year. This Segment is growing rapidly with a 48 percent increase in revenue and a 207 percent jump in Segment profit at a margin of 27 percent that is set to grow significantly as this Segment builds scale in the years ahead.

Strong share price performance

Investors welcomed the 16 percent lift in normalised net profit after tax to A$764 million by pushing the closing share price up 12.3 percent on the day.

The Group’s cash generation resilience regardless of economic conditions and ongoing active capital management by way of a continuing share buy-back were also well received by investors. The current on market share buyback has been increased by $350 million and will run to February 2025. This buyback is to be funded from ongoing cash flow generation and the $366 million net cash position as at 31 March 2024. The share buy-back is to be accompanied by a $228 million shareholder dividend of 36 cents per share fully franked and payable on 2 July 2024.  Aristocrat funds a high level of organic investment in the design and development of new product and user acquisition technology. This was 13 percent of half-year revenue in addition to $248 million of capital expenditure that included 3,200 additional net gaming units to drive longer term competitiveness and earnings capability.

Aristocrat shareholders can expect consistent earnings growth on the back of market share expansion from Aristocrat Gaming, disciplined execution in Pixel United and accelerating performance of Aristocrat Interactive to support broader market access in North America and Europe.