Fitch Ratings has assigned ASX-listed slot machine giant Aristocrat Leisure Ltd and its subsidiaries long-term Issuer Default Ratings (IDR) of “BBB-” with a Stable outlook, citing its strong business profile, conservative financial policy and visible de-levering path from its planned acquisition of online platform provider Playtech Plc.
Under Fitch’s ratings guide “BBB” reflects good credit quality, indicating low expectation of default risk and adequate capacity for payment of financial commitments.
In a Thursday note following publication of Aristocrat’s FY21 financial results – which saw profit soar 81% year-on-year to AU$864.7 million (US$628 million) – Fitch said the company is well placed to continue its growth trajectory, with the Playtech swoop viewed positively as it would provide Aristocrat “an immediate foothold in the online real money gaming (RMG) industry with established, profitable B2B and B2C businesses.”
“Playtech’s profitable B2B and B2C operations (primarily in Italy) already generate EBITDA margins in excess of 20%,” Fitch wrote. “This is in contrast to online RMG operators in the US, where customer acquisition costs are currently fueling material cash flow burn. In addition, the acquisition further diversifies Aristocrat’s pro forma cash flows. Prior to the deal announcement, Aristocrat’s credit profile had some headroom for M&A and Fitch views the funding mix favorably given the equity and excess cash components.”
Noting how quickly the company de-levered following past acquisitions of VGT in 2014 and Plarium/Big Fish in 2017, Fitch said it estimates pro forma gross leverage for Playtech to be 3.0x and to decline back to 2.5x by FY2023.
“The company consistently exhibits credit metrics consistent with investment grade gaming issuers and superior to Aristocrat’s major, US-based, gaming supplier peers.”
Fitch also praised the company’s ongoing efforts to move into the digital space, providing solid diversification against its traditional land-based slot machine business.
During the COVID-19 pandemic, “Aristocrat benefited from having a large, established digital gaming segment (40% of pre-pandemic business), which had an exceptionally strong year similar to other digital casino/casual gaming segments. Combined revenues only declined mid-single digits for FY2021, much stronger than other suppliers and casino operators, primarily due to Aristocrat’s digital outperformance.
“The digital business has grown meaningfully through both M&A and heavy investments in new content. Aristocrat’s previous acquisitions of Plarium and Big Fish increased its digital business from 16% of total revenue in 2017 to 40% at year-end 2019. Fitch believes there are limited synergies into Aristocrat’s land-based segment, but its Digital products provides healthy diversification to its core slot business (as evidenced during the pandemic).”
