Consensus community valuation
$28.10
Average Intrinsic Value
1.6%
Undervalued by
Active Member Straws
#SUMMARY
Added 2 weeks ago

29/07/20 A very rough analysis

Positives:

  • Global player in gaming machines, online gaming operating in over 90 countries. Second largest gambling manufacturer globally.
  • Proven company; with sales, cash flow and EPS compounding above 20% for last 10 years.
  • Digital segment growing, currently accounting for ~46% of total revenue from last 1H20 report.
  • Net margin above 15% past 5 years
  • ROIC > 10% past 5 years
  • CEO Trevor Croker owns about $AUD9.5m worth of shares. Considering his annual salary is $1.6m (excl ST/LTI), this is respectable
  • $871m in cash
  • Pays a small fully franked dividend ~ 2% though 1H20 dividend was suspended.
  • No recent director selling

Negatives:

  • High debt levels - $2.7b+, acquired Plarium and Big Fish in 17/18. Net debt/equity currently at 1.3x, interest cover ~ 8.
  • COVID19 - impact on 2H20 earnings. Interesting to note most casinos have reopened in the US. https://www.americangaming.org/research/covid-19-casino-tracker/ 
  • Washington lawsuit from 2019 - approx $30m settlement cost if approved.
  • Withdrawal of government handouts could impact on discretionary spending
  • Regulatory changes as expected in this space

Comment:

All in all, I like ALL (pardon the pun). Historically ALL has had big pullbacks in its share price, but over the long term it has very much outperformed the market. COVID19 may be a blessing in disguise, bringing forward plans to expand the digital segment of the business. Short term pain, long term gain. I back the management to ride out the COVID19 impact. However the active risks need to be monitored closely as per outlined above. 

At the current price, it is looking a little too expensive. Happy to add below ~$22.

Disc: [I hold ALL shares]

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