ALL FH25 RESULT--Disappointing but manageable

 ALL FH 25 RESULT SUMMARY

Transitional year with Plarium divested and Product Madness social casino expanded, and the Interactive Division set up for significant growth ($1b rev by 2029). Results exclude Plarium, so they reflect ongoing operations. Market share gains were generally made across all operations.

Group revenues were +9% (5% cc) and group profit +12% while NPATA was +6%. These results are good but are off a lower profit base as Plarium is now exited. The strategy is to grow off this lower base of profits with better quality and a higher growth profile.

States LNW have not played by the rules, and LNW have terminated some staff. ALL are progressing what they believe is intellectual theft by LNW. ALL are pleased with legal progress in the US and Australia, including a US court issuing a preliminary injunction regarding Dragon Train. LNW have given undertakings to cease sales of DT in Australia. LNW have ceased with Fuel the Dragon as it is a result of ALL IP. ALL is pursuing other LNW games. LNW appear to have taken some share over the past period.

The ALL restructuring looks to set the company up for lower-risk growth by focusing closer to its core competitive advantages. I think this is a sound strategy.

FCF easily funds capex, and net debt remains low, well below target levels.

Disappointing result from Gaming. Revenues were 2% higher and profit +3%, helped by currency. While market share was good and the installed base grew, and ASP was sound, other areas were weak. Outright sales in ROW and ANZ were lower and were blamed on the timing of the new Baron cabinet, ANZ cycling a difficult comp and competition as well, and the Fee per Day (FPD) was 5% lower over the expanded footprint due to product and channel mix (this concerned the market and was unexpected). NA units were 3% lower, with core units 10% lower, partly offset by adjacencies, which were 31% higher. A stronger 2H is expected due to a robust pipeline and strong demand.

FPD was lower due to lower multi-site games across the mix, as higher sales of lower-yielding Class 2 machines were made to tribal customers etc. Some promotional activity was undertaken on casino refurbishments and openings. FPD is expected to improve in 2H. In a historical perspective, the 5% fall is large.

Product Madness revenues were up 2% and profits up 9%. The overall market contracted. Cost control was good, and DTC (direct to consumer) revenues increased from 6% to 13% of total revenues, a very strong result, adding to the margin improvement.

Interactive, the new division, has had a promising start. On a pro forma basis, iLottery was up 15% and continues to expand as a leader in the space. Content was 17% higher as ALL inventory was added to various aggregator sites. Much more is expected. Platforms were 3% lower as hardware sales were lower, but underlying recurring income (76% of total) was better. ALL spoke positively about future growth prospects as the division is still organising growth paths, which are yet to launch. US$1b revenues in 2029 were reiterated.

OUTLOOK- ALL expects NPATA growth on a cc, ex Plarium basis in 2025 fy.

 

QUESTIONS AND ANSWERS

FPD decline was product mix, some channel mix, plus some softness in the market. There was no structural reduction in turnover through the machines. Promotional activity has now been unwound was 1% of the 5% decline. State declines are not due to competitive issues. No guidance on the extent of 2H improvements in FPD were given.

Do not see weakness in customer orders arising from a weak US consumer. Launched the Baron cabinet and expect ramp into 2H, and also more product launches in games. Pipeline looks strong. Customers froze CapEx when the new cabinet was coming. Mgt believes ALL can continue to take market share in gaming, as well as PM.

Expect Philippines casino openings in 2H to help volumes. No openings occurred in the FH.

Interactive saw a technology change of its platform, and ALL wanted the platform to be stable before the best games were put on the platform (igaming). 3/7 US states have the platform in place. They will be rolled out to all 7, and the games will follow. Sets up a good growth runway. Over several years, ALL see market share possibly going from 4% to 10-20%. Management can see multiple new markets in the LT.

DTC is not available on all applications, but will be rolled out on more. DTC should see a step-up in margin as well for the group.

M&A is not a focus and ALL will continue to invest in the three pillars. Possible tuck-ins for gaming and interactive.

Tariffs, ALL do not believe they are overly exposed. No impact in 2025.

Management spoke confidently about taking a share in ANZ into the second half. That is important as the competition from LNW has been focused here. Early signs are that ALL is regaining share.

DPS up 22%, indicating company confidence in the outlook.

CONCLUSION

No doubt a disappointing result in several areas. Part of this can be attributable to the transition through the strategic shift and coming off a strong comp period. The change in strategy is well thought out, and I think will lead to a stronger and faster-growing company. The timing of game and hardware launches also played a part, but we should see that normalise out in the near term. The competition from LNW has impacted, and we have seen ALL take a hard stand on protecting its IP. The improvement in Australia is promising.

At this stage, I'm prepared to give the benefit of the doubt to this well-managed company.

My buy target for ALL is $55. At that level, is see double-digit returns. Since I hold a medium-sized position, any buying is incremental, and I can be picky.

Disc held reasonable weight.