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Mid-Cap

Is Crown Resorts Still in the Game?

September 15, 2015 | Team Kalkine
Is Crown Resorts Still in the Game?

Crown Resorts Ltd (CWN)

 
James Packer has recently decided to step down as Chairman of the company and though this may come as a surprise to some investors, the move arises from the desire to play a more hands-on role in the company in its high-stakes gamble on major new casinos even as declining revenues have caused debt to take off. If everything goes well, the company will be in great shape otherwise they may well be looking for new capital which will not go down well with investors. Among the many new initiatives are the Barangaroo casino in Sydney which will cost $ 1.4 billion along with plans in Las Vegas for redevelopment, a new five star hotel in Melbourne, a casino redevelopment in Perth and a third casino in Macau. With so many things happening, clearly Packer's move into a more day to day management position underlines the importance of these initiatives.
 

Summary of Results for full year ended 30 June 2015

The normalised NPAT attributable to the parent of $ 525.5 million was down by 17.9% and the reported NPAT $ 446.3 million was down by 36.5% before accounting for significant items. The result for the full year was also impacted by asset impairment charges of $ 61.3 million. The normalised EBITDA of $ 824.5 million was up by 5.4%, reported EBITDA of $ 778.1 million was down by 11.4%, normalised EBIT of $ 562 million was up 4.5% and reported EBIT of $ 515.2 million was down by 18.6%. A final dividend of $ .15 per share was declared making a full year dividend of $ .37 per share.


Aspinall's Results (Source: Company Reports) 

The Australian resorts reported normalised revenues of $ 3.2 billion up by 14% with main floor gaming revenues of $ 1.58 billion up by 5.5%. Non-gaming revenues of $ 664.7 million grew by 4.7% and the VIP program play turnover grew by 41.8% to $ 70.8 billion. Normalised EBITDA was up 14.1% at $ 916.6 million and reported EBITDA by 4.1% at $ 946.7 million. The performance of Melco Crown Entertainment was adversely affected by weak market conditions in Macau and Crown's share of normalised NPAT of $ 161.3 million was down $ 129.9 million or 44.6% over the previous year. The share of reported NPAT of $ 122 million was down $ 165.6 million or 57.6%.


Crown Dividends (Source - Thomson Reuters)
 
CEO Rowen Craigie said that the overall results were mixed. Crown Melbourne results were pleasing its normalised EBITDA growing by 17.8% and Crown Perth reported more subdued performance reporting, with the help of cost reductions normalised EBITDA growth of 5.3%. Main floor gaming revenue grew by 6.9% at Crown Melbourne but only 2.6% at Crown Perth. The additional resources allocated to VIP international marketing over the last year has delivered strong growth of 41.8% in VIP program play turnover.
 

Crown Melbourne

 
Normalised EBITDA was $ 662.1 million, 17.8% higher than the previous year, and reported EBITDA was $ 644.6 million up by 8.6%. The reported EBITDA takes into account an adverse variance from the theoretical program play result which had a negative result of $ 17.5 million which compares to a positive impact of $ 31.5 million in the previous year. Normalised revenue was up 15.7% at $ 2.23 billion while main floor gaming revenue was $ 1.09 billion, up 6.9%. Normalised VIP play program revenue was $ 706.6 million, up 41%, with a turnover of $ 52.3 billion. The abolition of super tax on VIP program play has added to the competitiveness of the International business of the Crown Melbourne. Non-gaming revenues at $ 436.7 million grew by 6.6%. The Crown Towers hotel occupancy was 96% with an average room rate of $ 353. Crown Metropole Melbourne achieved the occupancy rate of 91.5% with an average room rate of $ 261. Crown Promenade Melbourne had an occupancy rate of 94.2% with an average room rate of $ 222. This reflects the strong demand for luxury hotel accommodation in the city. The overall normalised operating margin improved from 29.1% to 29.6% because of productivity and efficiency improvements.
 

Crown Perth

 
Normalised EBITDA was up 5.3% to $ 254.4 million and reported EBITDA was up 4.3% to $ 302.1 million. The reported result takes into account a favourable variance from the theoretical program play result which had a positive impact of $ 47.7 million compared to a positive impact of $ 74.1 million in the previous year. Normalised revenue grew by 10.4% to $ 975.3 million and main floor gaming revenue was up 2.6% to $ 498 million. Non-gaming revenue rose by 1.3% to $ 228 million. Crown Metropole Perth hotel occupancy was 90.5% with an average room rate of $ 314. Occupancy at Crown Promenade Perth was 83.8% with an average room rate of $ 216. Refurbishment work at Crown Metropole Perth has reduced the number of rooms available. The overall normalised operating margin reduced from 27.3% to 26.1% resulting from a change in business mix though this was partly offset by operating and productivity gains.

 
Perth Property Update (Source: Company Reports)


Melco Crown Entertainment Macau (34.3% equity interest)

 
The share of normalised NPAT was an equity accounted profit of $ 161.3 million down 44.6% over the previous year and the share of reported NPAT was $ 120 million down 57.6% over the previous year. Macau is currently going through a difficult time affecting all casino operators and overall gross gaming revenue in the market declined by 26.8%. The rate of decline has increased in the second half of the year. However, the Company believes that strong leadership from the governments of China and Macau can reverse this trend and that Macau remains the most important and exciting gaming market in the world in the long-term.
 
Among other investments, there is the Alon Las Vegas project in which the Company announced in August 2014 that a majority owned subsidiary had acquired a 34.6 acre vacant site located on the Las Vegas Strip. The Company and its partners are continuing with design work while developing a number of different funding options. Then there is the joint venture between the Company and the Schiavello group in which the Company had announced that it had made an investment of $ 50 million to acquire a 50% share in the land. The two parties are in the process of negotiating the final joint-venture arrangement and designs are being finalised for an iconic world class hotel and apartment complex on the site in Queensbridge Street, Melbourne. It has also been agreed that the Company will have the right to own and manage the complex when construction has been complete.

 
CWN Daily Chart (Source - Thomson Reuters)

Based on the above, we put a BUY recommendation for this stock at the current price of 10.54.

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