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Kalkine Daily - 13/03/2014

Mar 20, 2014

S&P 500was up by 0.57 points or 0.03% to 1868.20 on Wednesday. U.S. stocks fluctuated as investors watched developments in Ukraine and weighed prospects for global economic growth. China the biggest consumer of everything from copper to soybeans is scheduled to release industrial output data after reports over the weekend showed the steepest drop in exports since 2009.

West Texas Intermediate crude fell the most in two months, widening its discount to Brent to more than $10 a barrel, as U.S. supplies surged. The government announced a test sale of Strategic Petroleum Reserve oil. Copper declined to near four-year lows and global stock indexes have fallen for a fourth day as increasing concern about China’s economic slowdown sent a wave of unease through financial markets. Shares in Europe have closed lower on continuing concerns about the crisis in Ukraine with the Group of Seven countries saying they won’t recognize the outcome of the pending referendum in Crimea.


S&P 500 Daily Chart   (Source – Thomson Reuters)

S&P ASX 200 was down 29.6 points or 0.55% and closed at 5384.20 points on Wednesday. Qantas Airways and Virgin Australia Holdings may be headed for annual losses due to a brutal capacity war, but overall global airlines are on track to report improved earnings for the ­second consecutive year despite higher oil prices. The three-year old challenger to the Australian Securities Exchange, Chi-X Australia, turned its first profit in January and is setting its sights on its rival’s main revenue earners, including derivatives, equities clearing and listings.

Gina Rinehart’s Roy Hill project is 30 per cent complete, but still has not locked down its $US7 billion debt financing. Macquarie Group’s gas business in Hawaii will become the first company to ship liquefied natural gas to the island state from the United States mainland, in a milestone for the Australian-backed firm. Ten Network Holdings will commence negotiations on a possible extension to its formula one motor racing broadcasting deal later this year, before the contract’s expiration at the end of 2015.


S&P ASX 200 Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:-
 
Code Name Price
NCM Newcrest $11.98
COH Cochlear $57.57
MFG Magellan Financial $13.66
CSL CSL $72.50
MML Medusa Mining $2.42

 
Stock of the Day – Echo Entertainment Group (EPG)
Echo Entertainment Group is Australia’s second largest casino operator. Its key asset is The Star casino in Sydney. It also owns Jupiter’s which operates hotels and casino complexes in Brisbane and on the Gold Coast. All casinos are on long term licenses with the respective state governments. Licenses in Sydney and Brisbane expire in 2093 and 2070 while the license on Gold Coast is perpetual.

Echo released a disappointing first half fiscal 21014 report card. Revenue deterioration was evident across all properties. Actual group revenue fell 7.3% relative to the year earlier period. Normalized revenue adjusted for VIP win rates and turnover declined 4.8%. Lower private gaming and VIP revenue were the primary reason and the loss of momentum in VIP was disappointing especially given the recent investment in Star.


Source - Echo Entertainment
 
We believe ongoing traction in the VIP segment will be difficult to build and maintain. Despite new investment, The Star may continue to operate at a competitive disadvantage in this segment given its location at Pyrmont outside the central business district. The situation will be exacerbated by the entry of CROWN in 2019. Crown’s VIP only facility at Barangaroo is in a superior location on the edge of the CBD. VIP provided only a small and declining proportion of Queensland revenue.


EGP Daily Chart  (Source - Thomson Reuters)
 
We highlight high uncertainty around long term earnings and returns given investment in Queensland sites and impending competitive change in all markets. Casino earnings can be volatile with leverage to win rates in the VIP segment while gaming and main floor revenue are exposed to macro conditions. We find the stock expensive at its current price and would review it again at a later date.


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