Crown Resorts Limited

CWN Details

Proposal for Acquisition from Blackstone: Crown Resorts Limited (ASX: CWN) is an entertainment company based in Australia with its operations in various integrated resorts, including Crown Melbourne Entertainment Complex and Crown Perth Entertainment Complex. Crown Melbourne is an integrated resort that comprises a casino, hotels, function rooms, restaurants, shopping, and entertainment facilities. On 22 March 2021, the company announced that it has received a proposal from The Blackstone Group Inc. and its affiliates to acquire the complete shareholding in CWN. The Blackstone Group has set an indicative cash price of $11.85 per share, representing a 19% premium to the volume-weighted average price of CWN since the release of its 1H FY21 results. The Blackstone Group had acquired 9.99% in CWN from Melco Resorts & Entertainment Limited previously at $8.15 per share in April 2020. The Board of CWN will assess the proposal and other considerations for which CWN has appointed UBS as financial adviser and Allens as its legal adviser related to the proposal.  

Financial Highlights for 1HFY21: CWN has reported a decline of 62.1% YoY in its revenues in 1HFY21 to $581mn. CWN has reported a net loss of $120.6mn in 1HFY21 against a profit of $218.7mn in 1HFY20. As per the company reports, COVID-19 had severe impacts on the business operations of Crown Resorts Limited in 1HFY21. The company has seen an increase in its current liabilities to $1,156.0mn as at 1HFY21 from $669.9mn as at 2HFY20 and non-current liabilities were recorded at $1,904.0mn from $1,741.6mn during the same period. The Current assets were recorded at $725.7mn as at 1HFY21 as compared with $456.9mn in 2HFY20.

1HFY21 Results (Source: Company Reports)

Outlook: CWN will be evaluating the conditions on the proposal made by The Blackstone Group to sell off its complete shareholding. CWN has appointed financial and legal advisers for the same purpose. Regulatory authorities will also be engaged with other relevant stakeholders to take the decision regarding the proposal from the Blackstone Group. In the second-half of FY21, the company expect the performance of Crown Digital to be more subdued with a softer revenue performance due to increased marketing spend to drive long-term growth. Corporate costs of CWN in H2FY20 is expected to be similar to H1FY21, which was at $44.2 million.

Valuation Methodology: EV/Sales based Relative Valuation Method (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: In the last one month, CWN has increased by 16.78% and by 24.42% in the last three months. The current market capitalisation of CWN stands at ~$6.67bn as on 22 March 2021. The stock is currently trading above the average of its 52-weeks’ price level range of $5.84-$12.11. On the technical analysis front, the stock has a support level of ~$10.12 and a resistance of ~$12.05. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of low double-digit (in % terms). We believe that the company can trade at some discount as compared to its peer average, considering a significant effect on the company’s top-line and bottom-line on the back of pandemic situation. For the purpose, we have taken peers Jumbo Interactive Ltd (ASX: JIN), Corporate Travel Management Ltd (ASX: CTD), Tabcorp Holdings Ltd (ASX: TAH) to name a few. Considering CWN’s decline in top-line and bottom-line, increase in the current liabilities as on 1HFY21, valuation, and current trading levels, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $11.97, up by 21.39% as on 22 March 2021, owing to the announcement related to the acquisition proposal from Blackstone Group Inc.

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

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