abn abros current evaluation

The Bear Cage: Aristocrat Leisure (ALLKZP) – More downside to come

We called ALL a sell in late October after the company revised its 2008 NPAT guidance down c30% on a deterioration of global operating conditions. ALL is losing market share in key Australian and Nth American markets and the take up of its new gaming technologies has been poor. Expect operating conditions will deteriorate further in 2009 and limited visibility on any improvement. With the current economic climate it is unlikely that casinos and clubs/pubs will be installing any new poker machines. Go short through ALLKZP.


Technically ALL is in downtrend and looks headed back to 2003 levels under $2. The current valuation is still at a premium to the market, however market share continues to be under threat and there is a possibility of further earnings downside.

ALL revised guidance for 2008 NPAT to be between A$120m-150m, c30% below previous guidance of A$190m-200m and c27% below consensus estimates. The company stated that the downgrade has been primarily driven by:

1) a marked deterioration in global operating conditions,
2) slower-than-anticipated uptake of the Gen7 platform, and
3) exacerbated delays in releasing new product to market.

ABN AMRO target price $3.80. Sell recommendation. Valuation metrics below show that at a market PE the stock is sub $3.



I'm pulling up stumps on this one.

Cheers, Skip.