Investment firm UBS said it’s upgrading its view on Aristocrat Leisure’s stock to buy from neutral following the Australian firm’s agreement to buy U.S.-based Video Game Technologies for $1.28 billion.
The firm said the VGT acquisition has strategic merit in that it’s consistent with Aristocrat’s stated intention to expand North American recurring revenue. It also provides opportunities to leverage off VGT’s tribal relationships to roll out existing Class III video and stepper products.
From 2016 onwards, UBS said the purchase is likely to provide a boost of about 14 percent to earnings per share, but in the shorter term the firm said it has reduced its earnings forecasts for Aristocrat.
It said it has cut its estimate for 2014 EPS by 12 percent and 2015 by 3 percent, partly because of the slippage in timings of replacement opportunities in Macau, as well as the delay of a major title release in Japan. Management now expects Black Lagoon 2 to be out in 2015 rather than this year.
The 12-month share price target was raised to $5.90 from $5.20.