Share to Buy: Crown Limited (CWN)


Crown Resorts (CWN) manages a variety of gaming and entertainment facilities, including, bars, restaurants, nightclubs, cinemas and retail outlets. It also develops hotels and conference centre facilities.

The company has two major operations:

  • Australian Resorts, which includes Crown Melbourne and Crown Perth
  • Melco Crown Entertainment (33.6%-owned), which is a developer, owner and operator of integrated resorts in Macau, China

CWN also has interests in different projects including online gambling site Betfair, Cannery Casino Resorts in the US and Crown Aspinall’s, which operates three regional casinos in the UK.

1H14 Results

Crown Resorts reported a 29.4% jump in 1H14 underlying profit to $315 million. Reported net profit pre-significant items totalled $382.5 million, up 64.3%.

Despite the strong growth, CWN’s earnings fell short of analyst estimates, helping to explain the drop in its share price on the day of the announcement.

In particular Australian resorts disappointed expectations, with normalised EBITDA and revenue down 4.4% and 6.1% respectively.

At Crown Melbourne, a 33.1% drop in VIP revenue was blamed on a burdensome tax regime in Victoria, which essentially limits the amount of money CWN can spend attracting high rollers to its venue.

Notably, the Victorian government proposed a new pokies levy last December, which CWN hopes to use as a negotiating tool in lowering VIP tax rates at Crown Melbourne.

A positive outcome for CWN, which succeeds in lowering Crown Melbourne’s VIP tax burden, is likely to drive a turnaround in Australian VIP revenue.

Melco

Melco Crown Entertainment (MCE) continues to be the main driver of CWN. CWN’s equity accounted share of MCE’s normalised net profit surged 118% in 1H14.

Melco’s growth was driven by both the VIP and mass market segments. Asia’s rising wealth translated to strong growth in the premium mass customer segment at Macau’s premier entertainment hub, City of Dreams.

In response to Melco’s strong profit growth, the board of the Macau JV recently approved a special dividend, of which $71 million is due to hit CWN’s bank account.

Going forward, the Melco board will implement a quarterly dividend policy, with the payout ratio equating to 30% of annual profit.

This cash injection is likely to bolster CWN’s already strong balance sheet, providing scope for the group to expand dividends to its own shareholders.