Why Aristocrat Leisure Limited shares have risen strongly today

Increased profitability in the North American operations is a highlight.

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What:

Aristocrat Leisure Limited (ASX: ALL) is a manufacturer and distributor of gaming machines for casino operators like Crown Resorts Ltd (ASX: CWN). Today it reported a rise in revenue and net profit after tax (NPAT) by 7.6% and 9.1% respectively. It also reported an interim dividend 14.3% higher than the prior period. The stock reacted positively to be trading up over 4% at its intra-day peak of $5.39.

So What:

Chief Executive Jamie Odell anticipates, “strong NPAT growth over the 12 months to 30 September 2014 largely driven by improving operational performance across key markets and segments.”

He also stated that the increased profitability in the North American operations was a highlight and for the group overall he expects the performance to be weighted to the second half. Another positive was a lower Aussie dollar as greater than 50% of revenue is derived from the U.S.

Now What:

The company operates in a very challenging industry with increasing competition. In Australia it competes specifically against Ainsworth Game Technology Limited (ASX: AGI) and more generally for the gaming dollar against Tabcorp Holdings Limited (ASX: TAH) and Tatts Group Limited (ASX: TTS). It is also beholden to swings in market share as was evident prior to the interim report. A positive mood already existed for Aristocrat Leisure because  a competing gaming technology specialist  Bally Technologies Inc (NYSE: BYI) reported a recent third quarter result below expectations.

Whilst reporting a good result, in my opinion industry dynamics make an investment in Aristocrat Leisure too speculative.

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

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