Aristocrat had a good result today, comfortably ahead of consensus on most metrics.

Generally speaking, it is quite a cyclical business, not so much because of how the industry revenues move with GDP, but rather due to idiosyncratic reasons, like the ebb and flow of popular games that grab and hold consumer attention.

And, at the moment, the games ALL have are quite popular, with the headlines being Top 17 out of 25 premium leased.

It takes a lot of money to R&D the kinds of games that are going to be popular, and also costs a lot of money to market them successfully. Pretty normal for a business, but it does give rise to the idea that revenues and earnings for ALL can be quite volatile.

COVID was, unlike most recessions, deeply unusual in that casinos, normally quite defensive to downturns, were closed, and so revenue models which have a “fee per day” type arrangement (there’s lot of inputs to how they get paid, but that’s a part of it) are effected if games are switched off and gaming venues are closed.

That’s why ALL was a “COVID recovery” stock, rather than a “COVID beneficiary”, as you might well have initially first thought.

The financials look good, with low gearing (thanks to the acquisition related equity raise) and strong cashflows (not shown, as Bloomberg takes a little while to update the newly reported numbers).

The acquisition of Playtech, subject to approval (shareholders, rival bids, legal and regulatory), is sensible in the low interest rate environment. Now is the time to go big.

As with many stocks of late, valuation metrics are fairly expensive, 30x forward earnings, but perhaps not outrageously so.

Not one we own, but executing well, and worth watching.

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