The Aristocrat Leisure Limited (ASX: ALL) share price has recovered strongly since the March 2020 bottom. Should investors bet on Aristocrat shares now?
Aristocrat Leisure is an Australian gambling machine manufacturer. It also designs digital games and provides gaming systems and accessories.
How did 2020 go?
The Aristocrat Leisure share price crashed 59% between 20 February 2020 and 23 March 2020. Since that market low, Aristocrat shares have doubled to $31.70.
The FY20 result, for the year to 30 September 2020, included some painful numbers. Whilst operating revenue only fell 5.9% to $4.14 billion, normalised EBITDA (EBITDA explained) declined 31.8% to $1.09 billion and net profit after tax (NPAT) fell 52.6% to $357 million. The statutory net profit rose 97.2% to $1.38 billion, but that was only due to the recognition of a $1.1 billion deferred tax asset.
FY20 was obviously going to be a disrupted year. But what does the future look like?
FY21 outlook
Aristocrat said that it’s planning for continued growth in FY21.
It’s expecting maintained or enhanced market leading positions in gaming operations, measured by the number of machines that are operating and game performance.
Aristocrat thinks there will be sustainable growth in floor share across key gaming outright sales market globally.
It’s expecting further growth in digital bookings, with user acquisition spend expected to remain between 25% and 28% of overall digital revenue.
Aristocrat plans to make continued drive and development investment to drive sustained, long term growth, with investment likely to be modestly above historic levels, on a percentage of revenue basis.
Management is expecting to spend more on marketing, general and administrative expenses across the business, as it continues to scale. This includes identifying adjacencies that expand its capabilities to create new business and growth through product, distribution and investment.
The company also pointed to a strong balance sheet, ample liquidity and robust cashflow to give it the options to continue to invest in growth.
Summary thoughts
Before COVID-19, Aristocrat was a strong-performing business that was generating good, consistent profit growth and was fairly reasonably priced for that growth.
Using CommSec profit projection numbers, it’s valued at 21 times the estimated earnings for the 2022 financial year. If profit growth can continue in FY22 and onwards then Aristocrat could be worth a small bet, if you don’t mind investing in gambling buisnesses.
At this stage, another smaller gambling business attracts me more for its US potential – Pointsbet Holdings Ltd (ASX: PBH) – but I prefer other ASX growth shares even more that are growing internationally, like EML Payments Ltd (ASX: EML) or Pushpay Holdings Ltd (ASX: PPH).
