Aristocrat hits the jackpot

After hitting a high of $4.41, shares in Aristocrat Leisure (ASX: ALL) finished trading yesterday at $4.30 – an increase of 6.2% for the day – following the release of the gaming company’s half year financials.

Although revenue for the poker machine producer fell 7.5% from the previous corresponding period, net profit after tax (NPAT) gained 11.2% to $52.6 million on the back of strong international performance and growing consumer confidence. Furthermore, the company expects its second half performance to be just as strong as its first.

The American sector was a standout performer for the company, as confidence in the market continues to pick up after the global financial crisis. Aristocrat’s CEO, Jamie Odell, highlighted the maintenance of ship share, higher average selling prices and sales as a key driver behind its strong result. The number of gaming operation installations also increased to 6,922 – a gain of 8.5% compared to the same period last year.

Meanwhile, despite strong competition in Australia from the likes of Ainsworth Game Technology (ASX: AGI), Tabcorp Holdings (ASX: TAH) and Tatts Group (ASX: TTS), Aristocrat’s ship share in Australia increased marginally, whilst the company also re-entered into the South Australian hotel and club market. The company also maintained its number one market share position across the Asia Pacific.

Another reason behind the company’s share price surge yesterday was the announcement of an unfranked interim dividend of 7c per share – a 75% increase from the 4c per share paid in the previous corresponding period – giving the company an attractive 2.1% dividend yield.

Together with growing profitability and shareholder payouts, what makes this company even more appealing is their heavy focus on returning debt to a more sustainable level. Aristocrat’s net debt levels at the end of the period reflected a decrease of $55.6 million since the end of the previous corresponding period, which has lessened the impact of interest and marketing expenses, helping to reduce operating costs.

The company’s share price has remained relatively flat today after yesterday’s surge.

Foolish takeaway

As global confidence continues to increase and the Australian dollar begins its descent, companies like Aristocrat can expect to perform strongly in times to come. The company was at its strongest just prior to the global financial crisis, when its shares were trading at around the $17.00 mark. Already trading with a P/E ratio of 27, it is unlikely it will reach that value any time soon, but the market is clearly anticipating that it still has plenty of gains to offer.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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