BUY HOLD SELL – Aristocrat Leisure (ASX: ALL)

Aristocrat Leisure (ALL) is a high-conviction stock for many investors.

The group reported FY22 results this morning with strong revenue and profit growth that was a slight miss on estimates. The share price is down 5.5% this morning, as management failed to provide meaningful guidance with any figures and gave us the typical "expects to deliver profit growth over the full year to September 2023".  

Highlights:

• Revenue growth of 17.7%
• Profit of $1.1bn, up 27.1%
• Net cash of $564m
• On-market buy-back of $340m
• US$250m repayment of loans
• Fully franked dividend of 52c, up 26.8%
• Profit growth is expected to continue in FY23, with innovation and investment to drive market share gains

 

Broker Recommendations

The previous broker research on ALL is fairly positive. Macquarie updated its research yesterday, leading into results this morning. The broker expected profits to lift 30% year-on-year, which includes a $61m foreign exchange benefit. The outperform recommendation and 4400c target price were retained. Macquarie says it has “high conviction” in ALL and sees attractive valuation on a 19x FY23 PE. Four of the other five brokers have buy or outperform iterations, with Credit Suisse, the only broker with a target price below the current share price. But remember these recommendations were all given pre the results today. The average target price is 4215c, implying an 11.3% upside. We will see more tomorrow.  

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The Numbers

Aristocrat Leisure is a growth stock with an average PE and low yield. It’s trading on a PE of 22.7x, so it’s not exactly cheap, but the PE is expected to fall in each of the coming years. Revenue growth and EPS growth is expected to be positive in the next 4 years, and it’s good to see EPS growth outpacing revenue growth, but both are decreasing over the next four years. Last year saw EPS growth of 82%, while this year, 23% is expected. The current yield is only 1.5% which grosses up to 2.2%. The group has a strong dividend payout history, with a dividend paid every year since 2012, but the 5-year average total yield is only 1.39%.  

The Chart

The share price has been in a bit of a sideways trend since June. Looks like there is a bit of a support level around 3200c that it’s bounced off a couple of times in the last 6 months. Should provide some support if the sell-off continues. The stock was also very close to reaching overbought levels, and this sell-off has dropped it back down to normal levels.  

Conclusion

To read the conclusion and to get access to more market commentary, sign up for a free trial now and become a better investor.     More about the author – Layton Membrey Layton Membrey has been working with the Marcus Today newsletter since 2021. He is currently undertaking a Master of Commerce specialising in Finance at Deakin University, which he will complete in 2023. Layton has quickly accumulated knowledge from Marcus and Henry, enabling him to develop his own investment style.