Like in a casino, you win some and you lose some in the investment business. Investments take time to pay returns, so earnings can sag in the short-term. Or when you’re hit with a loss, a sudden win helps improve the score.
One of these two gambling companies is coming off a good first half with higher profits. The other had a soft period, but future growth should come. Both have good prospects, so keeping up with their stories is important for investors.
Crown Resorts Limited (ASX: CWN) operates the Crown casinos, as well as the “City of Dreams” casino in Macau through Melco Crown, a joint venture company. In first half FY2014, it raised underlying net profit 29.4% to $315 million.
$140 million of that profit came from its equity accounted share of Melco Crown’s normalised NPAT. It holds a 33.6% stake in the company.
Melco Crown previously paid no dividend, but in late February it announced a special dividend of US$0.1147 per share.
At the time of the announcement, the aggregate amount would be about US$191 million. Crown Resorts would be entitled to a percentage matching its ownership stake. Melco Crown also set a dividend policy of 30% of annual consolidated net income. Crown Resorts can look forward to adding that to its future results.
The new dividend will be welcomed heartily since Crown may have extra costs for pokie machines in Victoria. It is negotiating a levy scheme with the Victorian government, which wants more money for each machine.
Initial estimates are that it may cost an extra $184 million in tax over four years. The Melco Crown dividend may help with any extra expense.
SkyCity Entertainment Group Limited (ASX: SKC) is remodeling and upgrading two of its casinos. It’s refurbishing its Auckland casino’s hotel and restaurant areas, and enhancing gaming areas in Adelaide. This affected first-half business at the casinos, lowering revenues due to disruptions.
It plans to develop a $400 million convention centre in Auckland, which would be the biggest visitor infrastructure project in the city since the SkyCity casino itself was built in 1996. That would potentially bring more tourism and customers to that venue and the casino.
The company reported softer consumer spending in Australia and New Zealand. Lower turnover in the second quarter due to the timing of international business from Asia reduced revenue.
SkyCity Entertainment should show better results once the casino upgrades are complete. When expected Asian customers come to play, revenues should improve.
Plans and developments can take much longer than a single half year to complete. The work and investment have to be paid for, so profits may suffer. Long-term investors can look past small setbacks as long as they can see expected earnings will return.
If you are confident in the company, and the overall stock story is still good, then you can take advantage of the market’s near-sighted view of stocks.
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