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Crown losing its shine

Casino operator, Crown Limited (ASX: CWN) has posted a 34% fall in net profit to $181 million for the six months to December 2012.

While revenues increased marginally, by 1.1% to $1,506 million, the company incurred a $52 million post-tax loss on the market value of its 10% shareholding in Echo Entertainment (ASX: EGP) and lower win rates on its VIP turnover compared to last year.

Crown owns casinos in Melbourne and Perth, a 33.7% interest in Melco Crown Entertainment, which owns and operates casino, gaming, hotel and entertainment facilities in Macau. Crown also has a holding in Aspinalls Club, which operates a casino in London, and is building another two in the UK, a holding in online betting site Betfair, and a 24.5% share of Cannery Casino Resorts LLC.

Crown has also proposed to build a $1 billion six star hotel resort at Barangaroo, on the Sydney waterfront, which will include 350 hotel rooms, restaurants, a retail precinct and VIP casino facilities. Crown has signed an agreement with developer Lend Lease (ASX: LLC) to jointly develop the project. Crown needs Echo’s support (or a change of mind by the NSW government) to build a second casino in Sydney, with Echo holding the exclusive licence until 2019.

Foolish takeaway

For income-focused investors, Crown has announced an interim dividend of 18 cents, franked to 50%. The company is spending a large sum of money on capital projects, including Barangaroo, expanding and refurbishing its Crown Perth casino at a cost of around $568 million, while Melco Entertainment is also expanding. Trading on a trailing P/E ratio of close to 17 times, and paying a partly franked dividend yield around 3%, Crown is no bargain, and investors might want to reconsider a gamble on the company.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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