FOLLOWING the RBA’s very low inflation forecast in their most recent statement on monetary policy, where they forecast 2016 inflation in the one to two per cent range, markets are now looking for another interest rate cut to 1.5pc by the August meeting.
As witnessed since during May, interest rate moves have significant implications for the Australian Dollar. When interest rates are lower for longer the Australian Dollar is typically lower for longer.
When it comes to AUD/USD exposed Australian listed stocks, poker machine manufacturer Aristocrat (ALL) has been the star performer, providing a strong first half of 2016 (1H16) trading update during the past fornight, sending the stock soaring. The key drivers behind this update were increased US participation, increased Australian unit sales and digital growth. Most analysts are forecasting US market share of about 20pc, while in the Asian region the market share is closer to 50pc. Should ALL continue to grow market share to 25pc to 30pc in the US, this will be a significant move. It is not impossible that the three top providers (of which ALL is one), can split the majority of market share in the US.
In Australia, ALL currently has a market share of around 55pc, which they will find tough to sustain in my opinion due to regulations on the number of machines allowed.
A clear positive has been ALL’s investment in the digital space, highlighted by the acquisition of Product Madness in 2012 (for $20 million) which is now contributing $60m of earnings before interest, tax, depreciation and amortization. The company sees opportunity for further growth in the digital space.
- Christopher Hindmarsh is an adviser at JBWere Limited which is owned by NAB. Email christopher.hindmarsh@jbwere.com or contact (02) 9325 2639. This article contains general advice only. In preparing it JBWere didn't take into account the investment objectives, financial situation and needs of any particular person. Readers should assess if the information is appropriate for their circumstances, or contact a licensed financial adviser.
