Crown Resorts Limited

Continued Traction in VIP Program Play Segment - Key Growth Driver: Crown Resorts Limited (ASX: CWN) has via a recent release stated that the Courts in its proceedings concerning the case of Crown Resorts Ltd versus the Barangaroo Delivery Authority (BDA), has given the verdict that the BDA, i.e. Authority has breached the development agreement. This agreement was executed between the Authority, company and the Lendlease parties (Lendlease). As the authority considered various bids to develop the central Barangaroo without first discussing the matter with the company and Lendlease, the litigation had arisen. The Court will make orders regarding the case in the Proceedings on Monday, 17 December 2018.

For the FY 2018, the company clocked Normalised revenue of $3,485.30 Mn, which increased by 10.6% over the year. This was on account of the increase in normalized VIP program play revenues, which was up 54.5%. The company reported an EBITDA of $878.30 Mn, which grew by 6.10% on a YoY basis. This growth was witnessed on the back of robust performance of the company’s Melbourne operations.

Going further, the Crown’s Australian resorts, Crown Melbourne and Crown Perth, continue to attract approximately 31 million visits each year. The firm is committed to improving the underlying performance of the Crown Melbourne and Crown Perth; this is one of the reasons why the company has got rid of its non-core assets. Moreover, the company will continue to grow its Crown digital segment which includes the wagering and online social gaming. Also, the company’s VIP program play segment is expected to witness continued traction from the customers.


 
CWN’s Financial Metrics for FY 2018 (Source: Company Reports)
 
On the financial parameters front, the company is trading at an EV/EBITDA multiple of 8.80x vis-a-vis the industry median of 9x. Moreover, the company has a dividend yield of 5.08% p.a. which is decent enough & better than the Industry median. Hence, these parameters depict that the company is undervalued in terms of EBITDA and the yields that it generates. Meanwhile, the stock price has fallen by 11.73% over the past six months as on 13 December 2018. Hence considering continued traction in VIP program play segment & the undervaluation,we maintain our “Hold” recommendation on the stock at the current market price of $11.890.
 

BHP Billiton Limited

 
Maximisation of Shareholder’s returns remains at the forefront: BHP Billiton Limited (ASX: BHP) has via a release stated that the market price for the purpose of the off-market tender buy-back of BHP Group Limited’s shares (Formerly BHP Billiton Ltd) would be A$ 32.1387. This price is calculated as the Volume weighted average price of BHP Group Limited ordinary shares over the five trading days up to and including Friday 14 December 2018. The company expects to announce the results of the off-market buyback, including the Buyback price and any scale back as on 17 December 2018.
 
Apart from this, the company has also provided its copper exploration program update. As per the update, the company confirmed the identification of potential new IOCG mineralization which is located 65 km to the southeast of the company’s operation at the Olympic Dam in South Australia. However, at present, the project is at a very primitive stage & there is insufficient geological information to assess the size, quality, and continuity of the mineralized Intersections.
Going forth, we believe that the company is committed to enhancing TSR (Total shareholder’s return) which is evident from the recent developments in the “Capital Allocation briefing” & the sale of its non-continuing operation of the On-shore US shale assets, the proceeds of which is slated to be returned to the shareholders in the form of a buyback and special dividend as a part of the firm’s “Shareholder return program”.


BHP’s Non-Financial performance metrics (Source: Company Reports)
 
On the financial metrics front, the company has provided a dividend yield (TTM basis) of 6.8% vis-à-vis the metal & mining industry average of 3.10 %. Moreover, the company has a strong balance sheet which is evidenced by the strong cashflows and a reducing YoY Net Debt/ EBITDA ratio which signifies that the firm has been able to contain its debt burden over the year. Meanwhile, the stock price has fallen 1.32% over the past six months and trading at PE multiple of 34.84x. Hence considering the strong balance sheet & management’s commitment towards maximisation of shareholder’s wealth, we maintain our “Hold” on the stock at the current market price of $32.40.
 

Rea Group Limited

 
Continued traction in audience base and strong Balance sheet: Rea Group Ltd (ASX: REA) has posted strong numbers for the quarter ended 30 September 2018. The top-line expanded by 17% on PCP & came in at $221.90 Mn. This growth was on account of the constant traction seen in the Australian Residential business and the inclusion of “Hometrack Australia Business”. Also, there was a full quarter contribution to the revenues from the Smartline Business vis-a-vis the two months of the first quarter corresponding to the last year.

The underlying EBITDA was clocked at $130.90 Mn, witnessing a growth of 23% on PCP. This was due to the robust growth achieved in the developer as well as commercial businesses. This performance was partially offset by the volume decline seen in the new apartment construction projects. Moreover, there was also a better product mix along with deeper penetration in the commercial business. The firm expects that the revenue growth will exceed the operating cost growth for the full year FY 2019, and this will lead to margin expansion going forth.

Going forward, the company expects the business conditions to remain challenging in the listings space. The conditions are likely to remain so, till NSW elections in March 2019. Moreover, the forecasts for the new apartment’s listings continue to show a declining trajectory.



 
REA’s EPS & Stock Performance over the years (Source: Company Reports)
 
On the financial parameters front, the company seems to be growing at a better pace, when considering its pre-tax margins of 46.8% vis-a-vis the industry median of 37.10%. Hence, on that basis, it can be said that it’s a growth stock. Also, the company has strengthened its balance sheet in terms of leverage, as the Net Debt-to-EBITDA multiple has fallen over the year to 0.47x. Meanwhile, the stock price has fallen 15.98% over the past six months as on 13 December 2018. Hence considering continued traction in audience base and a strong Balance sheet,we maintain our “Hold” recommendation on the stock at the current market price of $73.22 (down 2.956% on 14 December 2018).
 

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