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 Global Research 21 January 2019

First Read

Aristocrat Leisure Ltd

Social casino growth tracking at +15% y/y

External report suggests incremental market share gains

After a period of embargo, we highlight data from Eilers and Krejcik suggesting that

Aristocrat's online social casino businesses grew by 15% y/y in the December quarter,

versus market growth of 11%. Product Madness grew 12% y/y and Big Fish 21% y/y,

according to the report. For 2018, the report suggests the market grew by 15% y/y to

US$5.2bn.

Data supports our view of continued social casino growth in FY19

The 15% DecQ growth for Aristocrat compares to our 1H19 forecast of c.10%.

Importantly, the data also suggests that Aristocrat's growth has accelerated in the

December quarter versus the September quarter (which was +11% y/y).

Near-term digital performance to drive improved sentiment

Despite digital accounting for around a quarter of group EBIT, the near-term trading of

the shares will rely on its performance, in our view.

Valuation: $34.00 per share (unchanged)

Based on ~21x FY20 EPSA, weighted against growth peers within Australian industrials

and offshore digital companies (was 26x before growth / tech sell off).

Equities

Australia

Casinos

12-month rating Buy

12m price target A$34.00

Price A$23.56

RIC: ALL.AX BBG: ALL AU

Trading data and key metrics

52-wk range A$32.98-20.95

Market cap. A$15.0bn/US$10.8bn

Shares o/s 639m (ORD)

Free float 100%

Avg. daily volume ('000) 2,594

Avg. daily value (m) A$63.2

Common s/h equity (09/19E) A$2.15bn

P/BV (09/19E) 7.0x

Net debt / EBITDA (09/19E) 1.3x

EPS (UBS, diluted) (A$)

UBS Cons.

09/19E 1.42 1.34

09/20E 1.61 1.52

09/21E 1.76 1.65

Matt Ryan

Analyst

[email protected]

+61-2-9324 2253

Suthesh Jeyakandan

Analyst

[email protected]

+61-2-9324 3870

Highlights (A$m) 09/16 09/17 09/18 09/19E 09/20E 09/21E 09/22E 09/23E

Revenues 2,129 2,454 3,624 4,347 4,653 4,917 5,235 5,531

EBIT (UBS) 673 858 1,129 1,368 1,511 1,620 1,728 1,806

Net earnings (UBS) 398 543 730 906 1,028 1,125 1,224 1,289

EPS (UBS, diluted) (A$) 0.63 0.85 1.14 1.42 1.61 1.76 1.92 2.02

DPS (A$) 0.25 0.34 0.46 0.58 0.65 0.71 0.78 2.02

Net (debt) / cash (1,005) (652) (2,453) (2,006) (1,471) (887) (253) (349)

Profitability/valuation 09/16 09/17 09/18 09/19E 09/20E 09/21E 09/22E 09/23E

EBIT margin % 31.6 35.0 31.2 31.5 32.5 32.9 33.0 32.6

ROIC (EBIT) % 30.4 42.2 36.7 33.0 36.8 39.8 42.8 45.0

EV/EBITDA (core) x 9.2 12.4 14.6 10.6 9.4 8.5 7.8 7.5

P/E (UBS, diluted) x 18.5 21.5 23.2 16.6 14.6 13.4 12.3 11.7

Equity FCF (UBS) yield % 7.8 5.7 3.9 5.4 6.3 6.9 7.5 7.9

Net dividend yield % 2.2 1.9 1.7 2.4 2.8 3.0 3.3 8.6

Source: Company accounts, Thomson Reuters, UBS estimates. Metrics marked as (UBS) have had analyst adjustments applied. Valuations: based on an average share price that year, (E): based on a

share price of A$23.56 on 18 Jan 2019 22:37 EST

First Read: Aristocrat Leisure Ltd 21 January 2019

 2

Forecast returns

Forecast price appreciation +44.3%

Forecast dividend yield 3.7%

Forecast stock return +48.0%

Market return assumption 6.9%

Forecast excess return +41.1%

Valuation Method and Risk Statement

The key risks to Aristocrat include i) unfavourable legislation changes in key

jurisdictions, ii) increasing competition in key markets, iii) lower than expected

game performance or acceptance of new game releases by gaming venues, iv)

major delays to casino or jurisdiction expansions.

We value Aristocrat on a P/E relative to market