Why Crown Resorts Ltd just got added to my watchlist

The share price of Crown Resorts Ltd (ASX:CWN) was last at these levels in December 2012.

a woman

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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.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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