For many investors gaming, gambling and casino stocks play an important part in their portfolio as a means of providing solid defensive earnings streams including reliable dividends.
While Tabcorp Holdings Limited (ASX: TAH), Tatts Group Limited (ASX: TTS) and Echo Entertainment Group Ltd (ASX: EGP) might fit that definition in terms of defensive businesses, there is another stock that I'm currently more interested in from a valuation perspective.
The James Packer-controlled Crown Resorts Ltd (ASX: CWN) is down nearly 30% in the past 12 months and at Friday's closing price of $10.77 it is well off the $16.12 high reached in the past year and indeed a very long way from the all-time high of nearly $18 achieved back in early 2014.
Here's what the group reported on a normalised basis for its full year 2015 results:
- Earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 5.4% to $824.9 million
- Earnings before interest and tax (EBIT) down 4.5% to $562 million
- Net profit after tax (NPAT) slumped 17.9% to $525.5 million
- Full year dividend of 37 cents per share
- Net debt expanded from $1.7 billion to $2.5 billion
A tale of two regions:
Crown's wholly owned domestic business which includes the flagship Crown Melbourne as well as Crown Perth, achieved a 14% rise in revenues to $3.2 billion and a 14.1% jump in EBITDA to $916.5 million. The business is tracking solidly and has a number of positive growth factors including its Melbourne casino license being extended to 2050 and the development of a Crown Sydney offering.
Meanwhile, Crown's equity accounted investment Melco Crown suffered from sagging market conditions in China with Crown reporting that its share of normalised NPAT had slumped 44.6% to $161.3 million. The outlook for Macau remains clouded and shareholders will be hoping that the imminent opening of Studio City goes well.
Value:
Based on data provided by Morningstar, Crown is forecast to earn 70.2 cents per share in the current 2016 financial year and to maintain a dividend of 37 cps. With the share price at $10.77 this implies a price-to-earnings ratio and partially franked dividend yield of 15.3x and 3.4% respectively. At those levels the stock is starting to look interesting – if the Macau market stabilises and if Crown can earn a decent return on its development projects.