Crown Resorts Limited

CWN Details

Proposed Takeover by Wynn:Crown Resorts Limited (ASX: CWN) is an Australian based entertainment group with focus on integrated resorts sector. CWN owns and operates – (1) Crown Melbourne and Crown Perth both in Australia (2) Crown Aspinalls in London. Recently, the company affirmed that it is in the process of discussions with Wynn, who put a confidential takeover proposal to the company.The proposal presently contemplates the acquisition consideration (50% cash and 50% Wynn shares) with an implied value amounting to A$14.75 per share with the exchange ratio being fixed, using volume weighted average price for Wynn shares, immediately prior to the announcement of the agreed transaction.Ongoing discussion is in a preliminary stage, and the final decision is yet to be taken.

Crown Resorts made an announcement on February 20, 2019 that it and its joint venture partner, the Schiavello Group, had formally applied to Victorian Government for an extension to the construction commencement date for proposed One Queensbridge project. Crown and Schiavello had been informally notified by Victorian Government that an extension to the construction commencement date for proposed One Queensbridge project has been denied.

Financial Performance for 1H FY19: Reported profits for 1H FY19 stood at $174.9 million which implies a pcp growth of 9.9% (ex-significant items) but down 26.7% (incl-significant items). Reported EBITDA stood at $391.8 million for the same period and was down 2.1% (pcp). Interest coverage ratio for the period stood at 26.6x, well above the minimum level of >2.5x along with the leverage ratio at 0.9x as compared to the maximum level of <5.0x which depicts healthy financials of the company. CWN declared an interim dividend (franked to 60%) of 30 cents per share.


Group Results for 1H FY19 (Source: Company Reports)

On-Market Share Buy-Back: CWN, on 9 August 2018, mentioned its intention to buy back ~$400 million of shares under on-market buy-back event.During the period, Crown bought back approximately $131.4 million of shares representing ~1/3^rd of the buy-back capacity.

Stock Recommendation: At the current market price of $14.050 per share, the stock is trading at P/E multiple of 16.280x and market capitalization stands at $7.95 billion. The company’s annual dividend yield stood at 5.11% seems attractive if compared with Aristocrat Leisure Limited, Tabcorp Holdings Limited and Flight Centre Travel Group Limited. The stock, on 09 April 2019, witnessed the rise of 19.676%, owing to the release of Wynn Resorts Bids for Australia’s Crown Resorts; and shareholders need to consider the proposal given the offer price and past trading levels. Hence, considering good fundamentals and latest development in the company, we maintain our “Hold” recommendation on the stock at the current market price of $14.050 per share. 

Coca-Cola Amatil Limited

Clarification of Speculation: Coca-Cola Amatil Limited (ASX: CCL) is one of the leading manufacturers and distributors of ready-to-drink non-alcohol and alcohol beverages, coffee and ready-to-eat food snacks in the Asia Pacific region. CCL recently clarified and null the speculation that the company is involved in the financing of an acquisition of Lion Drinks and Dairy (LDD) portfolio. CCL denied any pursuance for the LDD portfolio and reiterated its comfort with the current outstanding portfolio of beverages.

Financial Performance of FY18: Underlying EBIT stood at $634.5 million and NPAT was $388.3 million and they witnessed a decline in growth of 6.5% each. The underlying EBIT was mainly impacted by not so good market conditions in Indonesia, accelerated reinvestment in Australian beverage, operational challenges in PNG and other factors. The company’s RoCE stood at 20.1% in FY18 which was slightly down from 21.6% in FY17.

Segment Results Overview for FY18 (Source: Company Reports)

What to expect: The company’s management foresees FY19 another year of a two-year transition phase for the company. With respect to Australian Beverages, the company stated that they will be positioned for growth in 2020 with the completion of additional $10 million of investment towards Accelerated Australian Growth Plan to increase the salesforce and, with the container deposit schemes in NSW and Queensland substantially embedded by 2019 end.

The management expects an EBIT loss for its “Corporate & Services segment” to be in the range of $10-$12 million for FY19 on the back of lower property rentals and other factors.They expect an improvement in EPS growth from 2020.
Stock Recommendation: At CMP of $8.400, the stock is available at P/E multiple of 21.90x with the market cap at $6.1 billion. CCL’s annual dividend yield stood at 5.58% and is higher as compared to its peer group. The company’s stock has gone down 6.12% on 1-year basis while appreciated 3.31% on YTD basis.

The strong fundamentals and business outlook, well placed business strategy and roadmap to meet the targets, expected improvement in earnings, etc. leads us to take a positive stance on the company.

As of now, we give a “Hold” recommendation on the stock at the current market price of $8.400 per share.

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