29/07/20 A very rough analysis
- 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
- 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
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]