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Are Aristocrat Leisure shares one of the best ASX 200 stocks to watch in 2024?

Aristocrat Leisure shares have delivered a healthy return in 2023. Is further growth in order for 2024?

aristocrat shares Source: Bloomberg

Aristocrat Leisure (ASX: ALL) shares have risen by over 30% year-to-date to AU$40.04. The gaming technology titan — which now sports a near AU$26 billion market capitalisation — delivered resilient full-year results last month, and is this week engaging with some of the country’s largest superannuation funds in Sydney for an event devoted to ESG considerations.

Gambling and ESG may be strange bedfellows, but further capital growth arguably requires continued fund support.

Aristocrat Leisure share price: full-year results

The ASX 200 company delivered a strong financial year to 30 September; operating revenue rose by 13% to AU$6.3 billion, driven by solid growth in Aristocrat Gaming’s high performing portfolio and excellent execution within the North American market.

The Pixel United business — formerly Aristocrat Digital — which comprises mobile games powerhouses Product Madness, Plarium, and Big Fish Games, also put in an effective performance. Management considers that while operations were roughly in line with the wider market, it is still continuing to grow Social Casino market share.

And the company’s online real money gaming (RMG) business — Anaxi — enjoyed a reasonable start and could be establishing the foundations for long-term growth.

While results across segments were mixed, EBITDA rose by 13.8% to AU$2.1 billion, while normalised net profit after tax (before amortisation) increased by more than a fifth to nearly AU$1.3 billion. Reported net profit after tax also rose — by more than 50% to circa AU$1.45 billion, and accordingly, dividends per share rose by 23.1% to AU$0.64.

CEO and MD Trevor Croker enthused that ‘the growth that Aristocrat delivered over the period demonstrates the ongoing resilience, competitiveness and diversification of our portfolio, and sound fundamentals in the markets in which we operate.’

Where next for Aristocrat Leisure shares?

Interestingly, management seems more conservative than some analysts. For context, guidance for FY24 is reasonably positive, with the company expecting to ‘deliver NPATA growth over the full year.’

This may sound lukewarm, then perspective is important — while the firm expects Aristocrat Gaming to deliver revenue and profit growth alongside increased market share, it’s also being realistic in that consumer spending in key markets could fall given the wider macroeconomic environment.

Further, while the NeoGames acquisition is expected to be financially positive within the first 12 months of ownership, Aristocrat expects it to be neutral in FY24 after taking funding into account.

However, Ord Minnett’s Tony Paterno considers that the company’s ‘highly popular and profitable electronic gaming machine titles… (could see it) capture share in the key North American market…the proposed acquisition of NeoGames is expected to close in the first half of fiscal year 2024, with capabilities offering global scale and new distribution channels for the company's content in the real money games sector.’

The analyst has an ‘accumulate’ rating and AU$45 price target on the stock.

Meanwhile, Morgans has an ‘add’ rating and also an AU$45 target — among other arguments, it considers that ‘ALL is better capitalised than many of its competitors and has what we regard as a strong platform to continue investment in design and development…ALL is a capital-light business despite its ongoing investment in Gaming Operations capex…(with) funding capacity for organic and inorganic investment in online RMG.’

The key risk for the gambling firm — other than increased regulation and the wider financial environment — is perhaps continual investment by superannuation funds.

AustralianSuper is the company’s second-largest shareholder, but CIO Mark Delaney recently noted that ‘gambling is a classic ESG issue…one whereby the social appetite and the regulatory environment evolves over time, and we need to be forward looking about how we do it.’

Of course, investing ethics on the retail level are personal — nearly 40% of Australians gamble at least once per week, losing AU$25 billion per year. For some, gambling is a problem, and for others, an enjoyable pastime.

In regulatory terms, New South Wales is planning to reduce poker machine number allowances, while Victoria wants to introduce shorter opening hours for venues, betting caps and slower machines. Longer-term, a recent Parliamentary inquiry has, among other measures, recommended a widespread ban on online gambling adverts.

But given the growth trajectory, Aristocrat Leisure shares may continue to rise in 2024.

Past performance is not an indicator of future returns.

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