Shares in Australia's largest casino operator tumbled to a one-month low after James Packer announced he was stepping down as chairman as the group posted a big slide in net profit.
While the decline in profit comes as no surprise, the change in leadership and a lack of an outlook for Crown Resorts Ltd's (ASX: CWN) troubled Macau operations have given investors little reason to stick around.
The rush for the exits sent the stock crashing 3.6% to $13.04 in early trade as the group posted a 17.9% decline in normalised net profit of $525.5 million and declared a final dividend of 19 cents a share to take its full year payout to 37 cents a share.
Both figures are in-line with market expectations but investors appear to be dumping Crown for its rival Echo Entertainment Group Ltd (ASX: EGP) after the latter posted a solid profit result yesterday.
Here are seven things you need to know about Crown's results:
- The market is troubled by James Packer's decision to hand over the chairmanship to Robert Rankin as Packer's name is synonymous with the group. However, management is trying to reassure investors that Packer will remain heavily involved with the group as he will take on a new executive director role to focus on the group's offshore operations, including its Melco Crown joint venture (JV).
- That may be a good thing as Melco Crown's Macau business is the weakest link in the group with Crown's share of the normalised net profit from the JV nearly halving to $161.3 million due to declining patronage of VIP gamblers since the Chinese government started its sustained crackdown on corruption. Trading conditions in the second half of 2014-15 actually got worse in Macau and management has not given any indication that there's light at the end of this long dark tunnel.
- Melco Crown is building a second large scale resort called Studio City in Macau, which is on track to open on October 27 this year and on budget. But the company doesn't know how many gaming tables the local government will allow it to operate and management "remains concern about receiving materially fewer tables" than it requested. The profitability of Studio City hinges on the resort securing enough tables.
- The silver-lining is Crown Melbourne's results which were bolstered by the removal of a "Super Tax" on its VIP gambling operations. Normalised earnings before interest, tax, depreciation and amortisation (EBITDA) increased 17.8% to $662.1 million. A 6.9% increase in main floor gaming revenue and a 6.6% improvement in non-gaming revenue (i.e. hotels and restaurants) also contributed to the good result.
- Crown Perth is following a similar theme and has delivered growth, albeit at a more modest pace with normalised EBITDA increasing 5.3% to $254.4 million. A lower tax rate and a 2.6% advance in main floor gaming revenue and a 1.6% gain in non-gaming revenue helped push up its bottom line.
- But growth in Crown's Australian operations pales in comparison to the earnings growth delivered by Echo Entertainment, which runs the Star Casino in Sydney as well as the Treasury Casino in Brisbane and Jupiters Casino on the Gold Coast.
- It's the lack of a nearer-term catalyst for the stock that is weighing on Crown and I am not expecting the stock to outperform (barring some corporate action, such as the rumoured management buyout) even though I think Crown represents good longer-term value at the current price.
