Many people naturally believe large-cap companies are too big to post massive gains. However, this high-returning ASX 200 stock might put those beliefs to bed.
Aristocrat Leisure Limited (ASX: ALL) is up 59% year-to-date, demolishing the 8% gain in the benchmark index. The gaming beast behind titles like Lightning Link and Dragon Link has given its investors reason to celebrate with such monstrous returns of late.
But today's spectacle ties into a major development for the company — one that should beef up Aristocrat's balance sheet.
Shares hit a fresh 52-week high of $66.10 in early morning trade before flipping into the red.
An extra US$800 million through the door
Back in May, Aristocrat informed shareholders that it would be conducting a strategic review of its casual and mid-core gaming assets. These assets are known as free-to-play games and do not need any form of licensing to provide to customers.
Aristocrat CEO Trevor Croker said at the time that such assets are "not aligned to our core, and we're continuing to review the strategic options in the best interest of shareholders". Instead, management has shown its strong intention to focus on the regulated gaming market — think pokies, online casinos, etc.
Today, the ASX 200 stock has revealed the outcome of this review.
The company's subsidiary, Pixel United, has agreed to sell Plarium — known for its mobile games such as Raid: Shadow Legends and Mech Arena — to Modern Times Group for a fixed upfront payment of US$620 million, with an additional US$200 million contingent on achieving targets from 2025 to 2028.
According to Aristocrat, Plarium delivered an internal rate of return in the 'mid-teens' during its ownership. For context, the company's return on assets last year was about 15%, which is relatively solid compared to the industry average of around 5%.
Furthermore, the proceeds from the deal will go towards Aristocrat's long-term growth strategy. Cash and cash equivalents stood at A$2.66 billion at the end of March. The upfront payment alone could lift the company's war chest to somewhere around A$3.5 billion.
While still subject to some closing conditions, the sale is expected to be finalised in the first half of next year.
Is this ASX 200 stock still worth buying?
Morgans recently lifted its price target on Aristocrat shares to $67 apiece. The broker explained that the iGaming portion of the business is performing beyond expectations. Meanwhile, the Goldman Sachs team has a less optimistic $62 price tag with a neutral rating.
According to Commsec, not a single analyst is willing to label the ASX 200 stock a sell. Out of 11 recommendations, six are strong buys, four are moderate buys, and one is a hold.
Aristocrat Leisure shares currently trade on a price-to-earnings (P/E) ratio of 28 times FY24 earnings.
