Stocks’ Details

Crown Resorts Limited

Interest Coverage and Leverage Ratio at Comfortable Levels: Crown Resorts Limited (ASX: CWN) is one of the Australia’s largest entertainment groups with its core businesses and investments in the integrated resorts sector. The company has interests in various digital businesses, including Betfair Australasia (100%), DGN Games (85%), and Chill Gaming (50%), and holds equity interests in UK-based Aspers Group (50%), and Nobu (20%).

The company recently updated that Wynn has terminated all discussions with Crown regarding a potential change of control transaction.

1H FY19 Results Performance: Crown’s Australian operations reflected mixed trading conditions in the first half of FY19. Total normalised revenue across Crown’s Australian resorts declined by 1.2% on pcp. Main floor gaming revenue posted a growth of 0.9%, with modest revenue growth in Melbourne offset by continued softness in Perth.

VIP program play turnover across Crown’s Australian resorts stood at $19.9 billionwhich was down by 12.2%, largely due to softness seen in the month of November and December.

Key Financial Ratios: In accordance with the terms of the Crown Subordinated Notes II, the company has tested Interest Cover Ratio (ICR) and Leverage Ratio (LR) for the six-months period ended 31 December 2018. For the period, Interest Cover Ratio came in at 26.6x, substantially above the minimum level of >2.5x. Similarly, LR at 0.9x for the period remained in a comfort zone as compared to the maximum level of <5.0x.


Key Financial Ratios (Source: Company Reports)
 
Update on Ongoing Projects: Construction of the Crown Sydney Hotel Resort remains on schedule for the completion in the first half of CY 2021. Total gross project cost is expected to be ~$2.2 bn with a net project cost of ~$1.4 bn. The proposed One Queensbridge project, a 50:50 JV between Crown and the Schiavello Group, was subject to financing. For this proposed project, the company and the Schiavello Group had formally applied to the Victorian Government for an extension to the construction commencement date (earlier, March 2019) which has been denied.

Stock Recommendation: With the major contribution to Australian tourism, employment, training and social responsibility program, the company is one of the largest entertainment groups in Australia. CWN stands as the largest single-site private sectors employer in both Victoria and Western Australia with the manpower of ~18,000. The company has demonstrated commitment towards world-class Australian operations and development projects over the years.

Going forward, the company remains focused to improve the underlying performance of the existing business as well as execute the development project pipeline.At the current market price of $13.020 per share, the stock is trading at price to earnings multiple of 18.180x. Annual dividend yield for the stock comes in at 4.58%. Based on the above-mentioned parameters, we maintain our “Buy” recommendation on the stock at the current market price of $13.020 per share (down 0.686% on 28 May 2019).
 

National Australia Bank Limited

Common Equity Tier1 Ratio at 10.4%: National Australia Bank Limited (ASX: NAB) provides banking services, credit and access card facilities, leasing housing and general finance, international banking, investment banking, wealth management services, funds management and custodian, etc.

Recent Developments: The company recently, informed that Philip Wayne CHRONICAN has acquired 10,000 ordinary shares for the consideration of $241,553 via on-market trade.

NAB has recently, announced an ordinary fully paid dividend of $0.8300 per security with ex-date of May 14, 2019 and payment date July 3, 2019.

The company, as on 17 May 2019, has issued a $1,000,000,000 subordinated floating rate medium term notes which are due on May 2029.

1H FY19 Operating Performance: NIM (net interest margin) was down 7 bps, primarily due to housing lending competition and product mix changes. Expenses were up 1.7%, reflecting continued higher investment spend partly offset by productivity benefits.

Credit impairment charges increased 20.4% to $449 million, and as a percentage of gross loans and acceptances increased from 2 bps to 15 bps in 1HFY19 against the prior corresponding period.

Key Ratios: Group Common Equity Tier 1 (CET1) ratio stood at 10.4%, up 20 bps from September 2018 which is well placed to exceed APRA’s ‘unquestionably strong’ target of 10.5% by January 2020. Quarterly average of liquidity coverage ratio stood at 130% with NSFR (net stable funding ratio) at 112%.   
               

CET1 Ratio (Source: Company Reports)

Outlook: NAB’s 3-year transformation program announced in November 2017 is now at the halfway mark and remains on track, despite higher than expected regulatory and compliance costs. Benefits of $1.5 billion increased investment over 3-years have emerged with 1HFY19 expenses 2% lower than 2HFY18. The Bank targets cumulative cost savings of at least $1 billion by 30 September 2020. Expenses for FY19 and FY20 are expected to remain broadly flat excluding large notable expenses.

Stock Recommendation: At the current market price of $26.140 per share, the stock is trading at price to book multiple of 1.3x which is significantly lower than the industry average of 3.9x. Annual dividend for the stock stands at 7.05%. In the last 3 months, the stock has given a decent return of 4.11%. Hence, considering the aforesaid facts and valuation, we give a “Buy” recommendation on the stock at the current market price of $26.140 per share (up 1.2% on 28 May 2019).
 

Tabcorp Holdings Limited

Well Diversified Gambling and Entertainment Business: Tabcorp Holdings Limited (ASX: TAH) is engaged in the gambling and entertainment services. The company has released a notification that BlackRock Group has become a substantial shareholder in Tabcorp Holdings Limited on 21 May 2019 with a total interest of 5.00% of the issued fully paid ordinary capital.

1H FY19 Performance: The Group reported strong results from continuing operations with revenue up 6.1% and EBITDA up 9.0% (vs pro-forma pcp). The performance was largely driven by strong lotteries and Keno numbers from game innovation, and digital and retail growth. Results were positively impacted by the full period contribution from the Tatts Group. EPS (earnings per share) for the period at 9.1 cents was up from 2.6 cents on pcp. 

The integration program by the company is progressing well. With the revision for synergy targets, the company has delivered $24 million of EBITDA from synergies and business improvements in 1HFY19. TAB is expected to deliver EBITDA-cost synergies of $55 million in FY19, which is up from the previous projection of $50 million. EBITDA Synergies and business improvements target for FY21 is set at $130 million-145 million. The management has upgraded cost synergies target to $95 million from $80 million for FY21.


EBITDA with Cost Synergies (Source: Company Reports)
 
Outlook and Stock Recommendation: The company is confident for its long-term growth for the combined business and remains focused on profitable growth in revenue market share over time with strategic investment in advertising & promotions, enhancing Digital & retail experience, etc. However, under-performance by UBET prior to full integration with TAB in late FY20 and continued investment in generosities with resultant impact on net yields are likely to be reflected in nearer-term results.

At the current market price of $4.560 per share, the stock is available at the price to earnings multiple of 54.880x. Hence, considering the aforesaid parameters and current trading level, we maintain our “Buy” recommendation on the stock at the current market price of $4.560 per share (down 1.085% on 28 May 2019).  


 
Comparative Price Chart (Source: Thomson Reuters)    

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