Aristocrat shares jump on $500m buyback amid expansion after failed Playtech deal

The poker machine giant is returning ‘excess cash’ to investors via a share buyback of up to $500m that will begin next month.

Aristocrat Leisure CEO Trevor Croker says the group is aiming to become the global leader in the burgeoning real money gaming sector.

Poker machine giant Aristocrat plans to return up to $500m to investors via an on-market share buyback, after raising $1.3bn for its failed takeover tilt of British gaming software company Playtech.

Chief executive Trevor Croker said the buyback will be completed on an “opportunistic basis” – starting from June – and the group would advance its own real money gaming (RMG) strategy.

Aristocrat’s shares closed 6.7 per cent higher at $33.73 on the ASX on Thursday, giving it a market capitalisation of $22.59bn, following news of the buyback. This compares with a 1.7 per cent slump across the broader share market.

It came as the group’s net profit in the six months to March 31 surged 46.5 per cent to $530.7m. Meanwhile, revenue jumped 23.1 per cent to $2.75bn.

It was hoped its $3.9bn bid for Playtech would accelerate this strategy by taking over a developed and leading platform. But investors led by former Playtech boss Tom Hall amassed a 28 per cent stake that it used to kill the deal, despite Aristocrat securing the support of Playtech’s board.

Mr Croker said the company was now pursuing its own “build and buy” strategy to develop “scale in online RMG, while also returning cash to shareholders”. And he believes that Aristocrat can become the global leader in the RMG market, the total revenue of which is expected to surge 13 per cent to $US112bn ($160.14bn) by 2025.

“Five years ago, if I told you we’re going to be the No. 1 in the land-based gaming world, you probably would have looked at us and said ‘why do you guys think you can do it?’. And we are now,” Mr Croker said..

“We believe in aspirations and we believe we can do it. We’ve got great content that people want, and we’ve got strong regulatory relationships. We continue to invest in our people and we do it through building by strategy.

“We are accelerating the implementation of our ‘build and buy’ strategy to scale in online Real Money Gaming, which provides further channels for us to distribute our world-leading content.

Aristocrat raised $1.3bn last October to help fund the Playtech deal. On the surface, this leaves $800m to invest in the build and buy strategy following the $500m buyback. But Mr Crocker said the company was not limited by that number, signalling greater investment in the strategy.

“We’re not constrained to a number but we are very disciplined in our approach to m&a and you will have noticed ... we have been disciplined in focusing on what creates value for shareholders, and then making sure we deliver on that,” he said.

“This $500m is just utilising the excess cash flow that the business generates on an annualised basis and you can see the strong cash flow fundamentals of this organisation. So it‘s a good way to give back to shareholders cash.

“Our sustained investment in talent, technology and product enables us to continue to take share wherever we play and delivered significant top and bottom-line growth in the first half of fiscal 2022.”

Aristocrat plans to launch i-Gaming products in two jurisdictions in the US by the end of this calendar year.

It comes as the company has evacuated or relocate 75 per cent of its 1000 staff in Ukraine across its Pixel United business, which includes three mobile-first games publishers: Product Madness, Plarium and Big Fish games.

Despite the disruption from Russia’s invasion of Ukraine, now in its third month, Mr Croker said productivity was around 70 per cent of pre-conflict levels, which was “testament” to worth ethic of Ukrainian staff.

“We are continuing to move people and relocate them,” Mr Croker said.

“We still have offices in Poland and have expanded offices in other jurisdictions like Finland and Spain and we continue to look at providing more certainty and security for those people that are choosing to relocate.

“I am very proud of what our team have been able to achieve.”

MST Marquee analysts said Aristocrat “smashed expectations” with the result beat supplemented by the share buyback.

“We believe shareholders will be pleased to see this given Aristocrat’s excess cash position and current price weakness,” MST said in a note to investors.

“Overall a very strong result, driven by a solid recovery in land-based markets post Covid impacts across FY20/21. We saw potential for a 1H22 beat, but not to this extent.”

Aristocrat will pay an interim dividend of 26c a share, fully franked, on July 1.