The house might always win… but shareholders don’t


Shares in the under-siege casino operator Echo Entertainment Group (ASX: EGP) were trading lower this afternoon, as the seemingly perennial takeover target reported net profit that was over 80% lower than the previous year (albeit not a full year due to its demerger from Tabcorp (ASX: TAH)).

The company reported flat revenue, but incurred higher operating costs at its flagship The Star casino in Sydney and a larger bad debt provision and write down of debts owed to it by a tourism operator which has been placed into liquidation.

Both its The Star and Treasury casinos reported lower profits, with Treasury also reporting lower revenues. The Star posted top line gains, and the Jupiters property in Queensland managed to deliver growth in revenues and profit.

Disappointingly for Echo shareholders looking for income (but probably in the interests of shareholders in the long term) the company has both amended its dividend payout policy and — as a result — not declared a final dividend, after paying 4 cents per share as an interim dividend.

The poor results may well be another nail in the coffin of an independent Echo, as James Packer’s Crown (ASX: CWN) will likely use the poor result as yet another reason the two groups should form closer ties. Of course the Malaysian company Genting may also have designs on Echo, so we may yet be quite a way from a final resolution.

Meanwhile, across the Tasman, Sky City Entertainment (ASX: SKC), the operators of the eponymous Auckland casino (and one in Darwin), benefitted from the New Zealand-hosted Rugby World Cup. Revenue and net profit both rose 8%, and its 2013 financial year has started well, though the company has cautioned that matching the 2012 rugby-inspired results will be hard to achieve in the absence of the World Cup this year.

Foolish takeaway

It may be the case that punters are on a hiding to nothing — on average — at an Australasian casino, but the different results from these businesses clearly show that while the house may always win, shareholder returns are far from guaranteed.

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Scott Phillips is an investment analyst with The Motley Fool. You can follow Scott on Twitter @TMFGillaThe Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691)

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