Casino operator Crown Resorts Ltd (ASX: CWN) has had a bumpy few years. After trading as high as $16 in 2014, shares hit a low of just above $10 in the second half of 2015. Today, they change hands for $12 apiece.
The jewels in Crown's crown is its Melbourne casino, which underpin much of the company's earnings potential. Overall, Crown has a wide variety of prospects, including its businesses in Macau, the Philippines, West Australia, Sydney, and the US.
Recent media reports have covered the unfavourable market conditions in Western Australia post-mining boom, and the opening of Crown's six-star resort in Perth in December occurs at an unfortunate time. Management continues to believe the project's prospects are favourable, although they have noted that performance is likely to be worse than if the tower had been completed at a different time in the economic cycle.
Crown's prospects remain intact over the long term, however. Like fellow casino operator SKYCITY Entertainment Group Limited (ASX: SKC), Crown enjoys long-term leases and concessions on a number of its properties, as well as a captive market thanks to legislation limiting the number of casinos that can be in operation.
Average operating performance
In recent times, all investors have seen is a massive upswing in debt on the back of a decline in normalised earnings. This is a result of the company investing heavily in upcoming projects, whilst also bearing the brunt of a business downturn in Macau. While concerning, investors should look through these issues to the fact that over the long term, such investment is likely to pay off in spades thanks to top class facilities and Crown's focus on high-roller customers. This could also provide some protection from downturns in the wider economy.
But what about privatisation?
There have been a number of media reports about a potential privatisation of Crown, led by founder and major shareholder James Packer. No offers have been disclosed to the market to date, and this appears to be an 'if and when' circumstance that shareholders will just have to deal with if/when it eventuates.
With a number of big projects in the works, shareholders could expect total debt to continue to grow, although Crown also has the potential for a significant uplift in earnings over the next several years. While the company has been a little out of favour with the market in recent times, it has a portfolio of world-class assets in monopolistic positions, and the profit-generating potential of these should not be overlooked.
