Crown Resorts Limited

CWN Details

Recommendation of an Independent Inquiry: Crown Resorts Limited (ASX: CWN) is an entertainment group with core business and investments in the resorts sector. The market capitalisation of the company as on 18 February 2021, stood at ~$6.56 billion. As per a recent update, the Gaming and Wagering Commission of Western Australia recommended an independent inquiry under the Casino Control Act 1984, into matters uncovered by the NSW ILGA Inquiry specific to the operations at Crown Perth. Crown is expected to co-operate with all of its regulators and restore public and regulatory confidence in its business and operations. The company is faced with allegations of money-laundering, breaching gambling laws and partnering with junket operators with links to drug traffickers.

Revised Operating Conditions: As per a recent announcement, the company expects to resume its operations in Victoria from 18 February 2021, following the cessation of lockdown there. CWN expects to commence operations under the revised guidelines, adhering to all the COVID-19 protocols in place.

Senior Management Changes: On 15 February 2021 the company has announced that Helen Coonan would assume the role of Executive Chairman on an interim basis, following the resignation of Ken Barton who stepped down from his role of Chief Executive Officer and Managing Director.

H1FY21 Results Update: The company has recently announced its H1FY21 financial results and reported a statutory revenue of $581 million during the period. EBITDA stood at $4.4 million. Crown Perth has seen increased traction in business since its re-opening in June 2020, while non-gaming operations started at Sydney in December 2020, with encouraging consumer footfalls.

H1FY21 Financial Performance (Source: Company Reports)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per ASX, the stock of CWN is trading above its average 52-weeks’ levels of $5.840-$11.945. The stock of CWN gave a positive return of ~2.85% in the past three months and a positive return of ~2.74% in the past six months. On a technical analysis front, the stock of CWN has a support level of ~$9.253 and a resistance level of ~$10.221. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight discount to its peer average EV/Sales (NTM Trading multiple), considering its muted financial performance, COVID-19 pandemic risk and ongoing inquiries against the company. For the purpose, we have taken peers such as Aristocrat Leisure Limited (ASX: ALL), Event Hospitality and Entertainment Limited (ASX: EVT), Jumbo Interactive Limited (ASX: JIN), to name a few. Considering the current trading levels, expected upside in valuation, easing of lockdown restrictions and increased customer visitations, we recommend a ‘Hold’ rating on the stock at the current market price of $9.73, up by 0.412% as on 18 February 2021.

CWN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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