MENU

Echo Entertainment Group Ltd’s CEO calls it quits

Sydney and Brisbane casino operator Echo Entertainment Group Ltd (ASX: EGP) has released its results for the half year. Reported statutory numbers were particularly uninspiring with reported net profit after tax affected to the tune of $15.5 million by one-off costs related to financing arrangements, a lower win rate in the VIP Rebate business and the effect of new levies and charges imposed by government regulatory bodies.

The Results

As is generally the case when analysing casinos, the more relevant figures are those which have been normalised for average win rates – on this measure Echo’s results were reasonable. Gross normalised revenue declined 4.8% to $929.6 million while like-for-like normalised earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 11.1% to $221.7 million.

In conjunction with the results release, Echo also announced that highly regarded and credentialed chief executive officer (CEO) John Redmond would be retiring and replaced by the current chief financial officer Matt Bekier.

Dividend

The board has declared a fully franked interim dividend of 4 cents per share (cps) which is in line with last year’s interim dividend.

Outlook

The outlook for Echo going forward is mixed. Investors are still coming to terms with the award of a restricted gaming licence to James Packer’s Crown Resorts Ltd (ASX: CWN) in Sydney.

The recently announced sale of its Queensland casino Jupiters Townsville for $70 million will free up capital and management’s time to focus on its core properties. Shareholders will be looking for signs of a return on the near $1 billion renovation of the flagship casino The Star in Sydney.

Expense control has been very good with costs down 4.5% over the half, reflecting the recently completed cost optimisation program. This program is forecast to generate in excess of $60 million of cost savings across the group annually. In the near term these savings will be overshadowed by the plans for a $345 million expansion and refresh of its Gold Coast casino Jupiters.

Pleasingly, Echo’s trading update was upbeat. January recorded domestic revenue growth across all Echo properties with the VIP Rebate business also solid. Management singled out the continuing Queensland properties as facing a period of exciting growth opportunities and an improved regulatory environment for the electronic-gaming machines.

Foolish takeaway

With fellow gaming peers including Crown, SkyCity Entertainment Group Ltd (ASX: SKC) and Aristocrat Leisure Limited (ASX: ALL) all due to report in the coming weeks, investors will soon have comparative data to analyse.

SkyCity will report on Wednesday 12 February and has already provided investors with guidance that normalised profit will be around 8% lower for the half year, with the company citing adverse exchange rate moves between the Australian and New Zealand dollar as a significant contributor to the decline.

Crown meanwhile stated at its AGM in October 2013 that for the first 17 weeks of the first half there was a general softness in consumer sentiment amongst its Australian resorts.

The top ASX pick you've never heard of...

Top Motley Fool analysts just identified their #1 ASX pick for 2014, a small-cap stock that could be poised for big gains (and offers a fat, fully franked dividend!). Discover all the details now, including the name and code, in this FREE investment report, "The Motley Fool's Top Stock for 2014."

Motley Fool contributor Tim McArthur owns shares in Echo Entertainment Group.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.