Aristocrat Leisure (ALL)| Market Update & 1H20 dividend suspension
Update: ALL has provided a further update in respect of the impact of CV-19 in terms of the impact on its businesses and it responses.
Land based gaming (60% of FY19 revenue): ALL noting that almost all of its global land based gaming customers have suspended operations since mid-March with a corresponding impact on outright sales and its installed base of c50k machines in North America monetising at US$50/day. ALL noting that it expects a gradual/phased re-opening of venues from here.
Digital Business (40% of FY19 revenue): Cited to be performing strongly.
Cost initiatives: ALL has outlined a range of cost initiatives in response to market conditions with a focus on staff (60% of costs). The main initiatives from May 1, 2020 are: 1) workforce changes have been applied to about 4k staff not employed in the Digital business; 2) 1k workers have been stood down; and 3) 200 permanent positions have been removed.
Financial position: ALL citing A$1bn in available liquidity. Nonetheless it has suspended the 1H20 interim dividend that was expected to be announced on May 21.
Our view: A not unsurprising announcement given that global venue shutdowns inevitably equal little in the way of outright machine sales and no participation revenue – we downgraded earnings on March 19 when ALL removed its previous FY20 guidance commentary. We expect Digital to do very well based on people staying home. We view ALL’s financial position as strong. Although we had not expected a total suspension of the 1H20 dividend it is probably prudent in that we don’t know how successful venue re-openings will be particularly in North America where CV-19 seems to be more of an issue. We expect ALL to emerge strongly from this downturn particularly relative to competitors. ALL reports 1H20 result on May 21.