Aristocrat Leisure

Aristocrat Leisure (ALL) has a target price of $8.80 from stockmarket analyst Macquarie Research Equities.

Aristocrat Leisure Ltd (ALL): Cutting Back in Australia

Lowering Australian replacement sales — On the back of ongoing weak trends in the very large NSW club and hotel market, driven by impact of smoke-free gaming on venues, we have lowered unit sales to roughly equal to those achieved in FY07, and have taken a more conservative view in forward years.

Aristocrat Leisure (ALL) has a maintained Outperform recommendation and a 12 month price target of $14.57 per share from Australian stock analyst Macquarie Research Equities. Aristocrat Leisure is a leading international developer, manufacturer and distributor of gaming machines and systems and is the largest gaming machine company in Australia. Yesterday the stock dropped 15% on the back of volatility in the markets, and a short tem view that current premiums are unjustified. This justification was mainly attributed to management yesterday revised guidance for FY07 to "broadly in line" with the FY06, reporting NPAT result of AUS$240.1m. In constant currency terms, the result guidance is for AUS$264m, up around 10%. It is due to this result and that fact that over a longer term these metrics lay significant attraction to the company, that the analyst maintains its outperform rating on the stock. As was anticipated, the demand for video gaming product deteriorated this half, though the actual drop was significantly larger than expected. Demand has been soft for some time now as operators sit on their hands waiting to see what progress is made on server based gaming platforms. Drawing more surprise to this shortfall was that ALL major competitors had posted growth in their US sales in their most recent quarters.

The reasons for this growth for Aristocrat Leisure have lead to ALL being wrong footed by a shift in the market towards five reel stepper product. Operators are dominantly churning their stepper machines and buying new five reel product in lieu of replacing video product which would benefit ALL. To compound matters, ALL is now paying for the mistakes that were made in the initial roll out of its stepper product, with many casinos demanding extensive trial periods before signing on the dotted line. This has acted to push out the booking of unit sales. Despite the slowing of video product, ALL is still showing slip share of around 40%. This figure alleviates any concern that competitors were wrestling away ALL’s video dominance. In turn this will act to set the company up nicely when the rebound finally comes, also for the migration to video server based product. All is not roses for the company, as both Australia and Japan fail to provide the upside that was built into the expectations of the market. Delays with a new system (TITO) approval of a new game in Japan caused sales to slip once again. Analyst's forecasts were relatively modest in regards to these two divisions, so regardless the majority of downgrades stem from the operational disappointment of the US. The analysts have maintained their outperform recommendation and 12-month target price of $14.57 despite the 15% fall in the share price yesterday. Instead they are looking at the longer dated embedded value that is a function of the growth of the global gaming market. It is due to this that it is concluded this stock is more of a long term view with a gradual movement over time. Aristocrat was a previous loser of the week earlier this year.