As expected, that battering Aristocrat Leisure took on the stock exchange yesterday didn’t let up.
The shares were belted by exasperated investors bailing out, and no doubt helped by some aggressive hedge fund games in the stock, as they do with all distressed company situations.
The shares tumbled to a day’s low of $4.50, down $1.58, before ending off 20%, or $1.23 at $4.85.
That was the lowest intra-day low and lowest close since early 2004. Aristocrat shares hit a high of $17.68 in late February 2007.
The market took a definite set against the stock and the company, especially as management went to ground and would not elaborate on what was a rather opaque downgrade.
There was no comparison to previous downgrades and ALL management went out of its way to make comparisons as difficult as possible.
They predicted that net profit for first-half 2008 would come in around $70 million, or 15.4c per share, and that full year profit would fall short of the previous estimate at the AGM by up to 23%.
But the first half estimate would be a 44% decline over the previous corresponding period’s net result of $125.9 million, or 26.8c.
The company only provided guidance for the full 2008 profit at the AGM: there was no estimate for the first half.
Aristocrat’s forecast that full-year net profit would come in between $190 million and $200 million, was 19% to 23% under the guidance supplied in April at the AGM, which forecast full-year net profit of around $247 million. Analysts had been looking for $236 million.
The company’s earnings have been skewing towards the second half of the year for various reasons in recent years (a 60%-40% break up).
Goldman Sachs JBWere analysts said:
"That while an earnings downgrade was on the cards, it was worse than expected."
"The drivers of the downgrade are not a surprise but the magnitude is," they said in a client note.
"We cannot rule out further earnings revisions at the result.’
"Given the lack of detail in today’s announcement we have only moved our earnings to the company’s revised guidance for CY08 and significantly pulled back our estimates for CY09 and CY10. We expect the company to detail the basis of its full year guidance at its result on 28 August and we will make further assessments at that time.
"However, given the poor growth of the last three years, repeated profit warnings, and a significant decline in profits in CY08, we expect the market will be very reticent to pay for perceived FY09 EPS growth until there is tangible evidence that it will be delivered."
Citigroup said:
"Given the 5 months to year-end and there remains further risk, in our view, that further downgrades may eventuate. We understand conditions in the US are deteriorating sharply, with forecast new units, as a result of new casinos or property expansions, down about 25% in the past month. The guidance is based on current trading conditions. Risk is that conditions worsen further, and we’ve assumed this in our downgrade to forecasts."
Credit Suisse said:
"We believe this downgrade is not a cleansing downgrade; 2009 still remains challenging due to low US demand and we don’t see the company emerging from the current soft cycle until 2010 when its new Viridian box gains traction and sales emerging from server-based gaming. As previously highlighted, market estimates for 2009 remain too high. Outlook: ALL reports its half-year results on 28 August 2008. Valuation: We are currently reviewing our estimates."
On Monday the company announced that 2003-installed chief executive Paul Oneile would not be renewing his contract at year end. The search for a replacement is now underway. The CEO says in Sydney media Thursday that his decision to depart and the downgrade were not related.
In late July, Aristocrat company secretary Bruce Yahl stood down with the position taken up by finance director, Simon Kelly.
