Crown Resorts Limited

CWN Details

Crown Melbourne Operating Conditions: Crown Resorts Limited (ASX: CWN) is an international casino and gaming entity, with businesses and investments in various international markets. As on 24 November 2020, the market capitalization of the company stood at ~$6.37 billion. The company has recently provided an update on operating conditions wherein it is allowed a total capacity limit of 1,000 patrons and a maximum capacity limit of less than 150 patrons in each indoor space. The company expects to start operating under the revised directions from 25 November 2020. The company has also announced that moody’s has changed its issuer rating from Baa2 to Baa3 and hence there will be an increase in the interest cost associated with its Euro Medium Term Notes of ~USD 1 million p.a.

FY20 Financial Highlights: During FY20, EBITDA before closure costs and significant items went down by 27.6% to $615.4 million and NPAT of the company declined by 80.2% to $79.5 million. The decline in EBITDA and NPAT was largely due to the decline in revenues and an increase in labor costs over the period prior to closure. As on 30 June 2020, the company reported total outstanding debt of $1,130 million and cash balance of $238.5 million.

FY20 Financial Highlights (Source: Company Reports)

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Despite several challenges in the short term with the current closure of Crown Melbourne and the ongoing uncertainty caused by the COVID-19 pandemic, the company seems well-placed to benefit from the long-term opportunities. As per ASX, the stock of CWN is trading on the average of its 52-weeks’ trading levels but retains potential for future growth. The stock of CWN gave a return of 0.62% in the past three months and a return of 10.44% in the last one month. On a technical front, the stock of CWN has a support level of ~$8.827 and a resistance level of ~$10.287. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in % terms). For the said purposes, we have considered Star Entertainment Group Ltd (ASX: SGR), Aristocrat Leisure Ltd (ASX: ALL) and Skycity Entertainment Group Ltd (ASX: SKC) as peers. Considering the current trading levels, decent returns in the past one month, and key investment risks, we recommend a ‘Buy’ rating on the stock at the current market price of $9.620, up by 2.231% on 24 November 2020.

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

Village Roadshow Limited

VRL Details

Increased Cash Consideration from BGH: Village Roadshow Limited (ASX: VRL) is in the business of cinema exhibition, film distribution, theme parks, and marketing solutions. As on 24 November 2020, the market capitalisation of the company stood at ~$556.60 million. On 6 August 2020, the company entered an Implementation Agreement with BGH Capital Pty Ltd, under which BGH proposed to acquire control of VRL by way of two alternative but concurrent schemes of arrangement. As per the agreement, VRL shareholders were supposed to receive $2.32 per share under the Structure A Scheme and $2.22 per VRL Share under the Structure B Scheme. However, as per the latest update on 23 November 2020, BGH Capital has increased the cash consideration to $3.00 per VRL Share under the Structure A Scheme and to $2.95 per VRL Share under the Structure B Scheme. Post the increase in cash consideration, VRL has received correspondence from a substantial shareholder, Spheria Asset Management, that it intends to vote in favor of both Scheme A and Scheme B in the absence of a superior proposal. The scheme meeting has been scheduled on 7 December 2020.

FY20 Financial Highlights: During FY20, the company reported a fall of 21.5% in income from continuing operations to ~$786k and recorded a loss after tax from continuing operations of $122.5k, reflecting an increase from $9.58k in FY19. The disruption in the financial performance was mainly due to impacts from COVID-19. Over the period from 1 July 2020 to 31 October 2020, VRL generated positive operating cash flow of ~$5 million on a pre-capital expenditure basis but negative operating cash flow on a post-capital expenditure basis. As at 31 October 2020, VRL had net debt of ~$311 million.  

FY20 Financial Highlights (Source: Company Reports)

Outlook and Guidance: The company anticipates lower trading along with an adverse movement in net working capital from FY20. VRL expects operating cash flow for the period 1 November 2020 to 30 June 2021 to be in the range of negative $5 million to negative $15 million. The company also expects to spend ~$55 million of capital expenditure and expects net debt to be in the range of $370 million – $380 million in FY21.

Stock Details: The stock of VRL gave a return of 37.61% in the past three months. Currently, the stock of VRL is trading slightly above the average of its 52-weeks’ levels. Based on the stock performance and other key updates covering the FY20 results, and takeover update by BGH Capital Pty Ltd, we have kept a close eye on the upcoming developments with regards to the proposed takeover. The stock closed at $2.890, up by 1.403% on 24 November 2020.

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

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.