Jefferies Equity Research analyst Kai Erman in an October 24 investor note described the climate for Aristocrat Leisure as “supportive,” in terms of the company’s hopes for its new Phoenix Link game cabinet.
Erman projected “significant growth” for Aristocrat through 2026, including the opportunity to realize $500 million a year in cash flow from igaming. He raised his rating to Buy, with a AUS$68 (US$45) price target per share. Aristocrat’s shares closed Thursday on the Australian Securities Exchange at AUS$57.39.
“We do not expect [Aristocrat] to dramatically improve share, given operators will be hesitant to be over-reliant on one supplier,” Erman wrote, adding that the present competitive scene should provide for incremental growth for Aristocrat and rival Light & Wonder.
Aristocrat’s unveiling of Phoenix Link at the Global Gaming Expo in Las Vegas was seen as a particular catalyst. This was viewed as especially so, in light of the court-ordered removal from casino floors of Light & Wonder’s disputed Dragon Train game.
Most importantly for Erman, Aristocrat “has opportunistically brought Phoenix Link to the market. This product, building on Dragon Link, was revealed after the Dragon Train preliminary injunction was granted. There remains some buzz on this product, particularly given [Aristocrat] has not seen a significant product launch deliver like some of the franchise-defining titles … for some time now.”
Phoenix Link, he continued, would support Aristocrat’s future top-line growth, in addition to having the opportunity to capture “significant” order share from Dragon Train. Erman predicted Aristocrat would ship at least 2,800 North American units next year. The projected Dragon Train void was thought to stand at 2,200 machines.
Given the scale of both Aristocrat and Light & Wonder, Erman perceived a “moat” around those two suppliers, as well as International Game Technology, though to a lesser degree. He noted that ongoing mergers in the sector provided even more opportunities for Aristocrat to consolidate its position. He characterized slot machine demand in the United States as “good, not great” at present.
Although no other meaningful competition had appeared to fill the Dragon Train vacuum, Erman opined, Aristocrat’s share price had seen little movement since the banned game’s removal. He added, “Timing of Phoenix Link rollout could not be better for [Aristocrat], and we are bullish on the land-based setup.”
As for Aristocrat’s online operations, Erman felt the rise of sweepstakes games would increase pressure on more U.S. states to legalize igaming. This, he believed, would redound substantially to Aristocrat’s benefit.
Aristocrat, he penned, “has continually improved their ability to leverage titles across different modes (land-based and social gaming in particular), and we expect this to translate to strong iGaming product.” Erman added that legalization of igaming in the U.S. had seen little cannibalization of brick-and-mortar gambling revenue, instead expanding the overall market, particularly in Michigan, New Jersey, and Pennsylvania.
Erman also spied opportunities for Aristocrat in both Latin and South Americas. Regulation of igaming in Brazil is expected to take place in January, “representing a significant market opportunity in both land-based and digital gaming. Aristocrat has already invested accordingly with Brazil focused titles rolled out across the U.S.”
The Jefferies analyst deemed large share buybacks unlikely, given that Aristocrat was endeavoring to reduce its leverage. He expected the company to retire $200 million of debt, reducing interest costs by 25 percent.
