About: Aristocrat manufactures and distributes gaming machines throughout Australia, America and various other locations across the globe. The company also supplies systems, software and other gaming related products to casino’s clubs and hotels. Aristocrat also has a fast growing online social business.

Why it’s in the portfolio: ALL has strong, consistent revenues and has been successful in increasing its market share in the Americas despite the overall industry remaining relatively flat. ALL has began to place a great emphasis on its online presence and has significantly increased the proportion of which this accounts for revenue over the past year. Increasing digital growth and capital management opportunities present ALL with a decent path for growth, and despite the challenging structural decline of gaming expenditure, we believe ALL continues to present the portfolio with attractive return prospects over the short to medium term.

Fundamentals: ALL has a market cap of around $18b, a P/E ratio of roughly 29 and a P/B of around 10. ALL has a trailing EPS of 0.99 and pays 0.5 DPS. The company has around a 55% dividend payout ratio.

What could go wrong: Declining gaming expenditure is the main risk Aristocrat faces. The Australian market has been in gradual decline for over a decade now which may indicate a structural shift within parts of the industry. ALL is also faced with foreign exchange risk as a large part of its revenue now generated in the Americas, so USD exposure increasingly adds to the companies risk dynamics. Regulation has also posed an ongoing risk, which has the potential to significantly impact future earnings.