There is little doubt Crown Resorts Limited (ASX: CWN) has had a challenging 12 months. The company has faced several headwinds that have directly impacted its gaming and resort operations in Australia and abroad.
Perhaps most notable is its Melco Crown joint venture in Macau, which has come under pressure since the Chinese government stepped in to reign in gambling on the island. The assets in Macau make up around 35% of Crown Resorts' earnings, meaning any loss of revenue in Macau will be substantial to Crown's bottom line. Weak consumer sentiment and the impact of a slowing Western Australia economy have also affected its domestic business.
Are these factors enough to dismiss Crown Resorts as a good long-term investment?
Crown has some of the best entertainment assets in the world and a strong pipeline of world-class projects on its books. While weak market conditions in Macau adversely affected virtually all casino operators, Melco Crown was still able to increase its share of the mass market games table segment. Future projects, including The Crown Sydney, The City of Dreams in Manilla, Studio City in Macau and upgrades to its hotels in Perth and Melbourne, should provide the company with a strong platform for growth. With consumer sentiment appearing to be improving in Australia and strong VIP play continuing, Crown Resorts should enjoy a more favourable operating environment.
Despite the short-term headwinds, I think Crown Resorts is attractively priced as a long-term investment. Priced at around 18 times earnings and offering a stable 3% dividend yield, the company offers plenty of upside potential in a growing global gaming market.
Ainsworth Game Technology Limited (ASX: AGI) has also experienced a difficult 12 months. It wasn't so long ago the electronic gaming manufacturer was trading around $4.80 before falling all the way to $2. It has since recovered to be trading around $3. The reason for the dramatic fall was the expectation that the company's growth may not continue as rapidly as it has in the past, along with issues surrounding founder and majority shareholder Len Ainsworth. As often is the case, the market over-reacted and provided savvy investors a great opportunity to purchase the stock at a discounted price.
With the current valuation of around 16 times FY15 earnings and a solid 3.5% dividend yield, the company is still attractively priced considering the strong pipeline of new products that should be released to the market soon.
Ainsworth Game Technology is growing strongly in its overseas markets and this will drive growth into the future. While domestic operations may have disappointed in its first-half results, management has stated that it expects an increased contribution for the second half of FY15 following the release of new products. The company is also investing in online gaming while also constructing a purpose built manufacturing centre in Las Vegas. Ainsworth Game Technology also has 181 unique and valuable jurisdictional licenses to manufacture and sell electronic gaming machines in Australia and around the world.
Ainsworth Game Technology operates in a growing world gaming market, which should provide the company with more opportunities to distribute its products. While short-term earnings pressures in Australia continue to dampen sentiment, the long-term fundamentals remain sound, which leads me to believe the company is a good long term investment.
