Our spot valuation for Aristocrat Leisure is $67.66 per share. Our 12-month target price is $74.00 per share. Our target price is based on the roll-forward of our valuation at the cost of equity of 9.95% less the next 12-months of dividends to be paid. Our valuation is derived through a blended average of our: 1) DCF valuation of $65.71 per share; 2) sum-of-the-parts valuation at $65.14 per share, and 3) PE relative valuation of $72.14. Our 10-year DCF valuation for Aristocrat is based on a WACC of 10.05%, equity beta of 0.85, and a nominal terminal growth rate of 3.5%. Our sum-of-the-parts valuation is derived comparing ALL to global peers.


Gaming. We value the Gaming segment at 65% premium to global electronic gaming machine supplier peers. This premium is justified by Aristocrat’s dominant market position in both the North American leased and outright market backed by industry leading intellectual property as well as a premium for RMG optionality. The peer set also includes several smaller underperforming competitors.


Interactive. We value at a 200% premium with EGM supplier peers. The segment has positioned to return strong growth over the next 5 years.


Digital. We value Aristocrat’s Digital business at a 30% premium with listed social casual and social casino gaming peers, bringing the multiple below the land-based business given the inherent risks in the industry.


Our PE relative valuation assumes Aristocrat trades at a 50% premium to ASX200 Industrials on 2-year forward earnings, the average of its trading range within the past five years. 

The downside risks to achieving our target price are as follows: 1)  Increased competition. There is a risk that Aristocrat could lose share to competitors in a number of its key geographies, particularly in the US; 2) Unfavourable currency movements. AUDUSD exchange rate appreciation could translate into lower reported earnings;  3) D&D and new product risk. Newly developed game titles may not succeed commercially; 4) General economic risk. A deterioration in macroeconomic conditions could impact Aristocrat’s end customers; and 5) Regulatory and political risk. Delays in the approval or licensing of games and platforms/hardware could impact Aristocrat’s earnings.

The upside risks to achieving our target price are as follows: 1) Decreased competition, allowing Aristocrat to capture further market share; 2) Favourable currency movements (i.e., a depreciation of the AUD) would result in a positive translation effect;  3) Future successful new game titles not currently captured in our operational and financial forecasts;  4) Favourable economic conditions boosting consumer spending and customer demand; and 5) The opening of new gaming markets could expand Aristocrat’s global addressable market.

Positive or adverse developments in these risk factors could cause the share price to remain above or fall below our target price.