In the last six trading days, the share price of Echo Entertainment Group Ltd (ASX: EGP) has risen nearly 16% to push the year-to-date gain to 26.5%. The sharp rise has provided welcome relief to long-term investors who watched the share price plunge from $4.60 to just $2.13 during a couple of shocking years.
About Echo
Echo owns four casinos in New South Wales and Queensland. They are The Star in Sydney, Jupiters on the Gold Coast, the Treasury Casino in Brisbane and Jupiters Townsville hotel and casino. The company also owns the management rights to the Gold Coast Convention and Exhibition Centre, and the Townsville Entertainment and Convention Centre.
A Forgettable 2013
2013 was a particularly bad year for Echo. The share price plunged 30% as the company delivered a net profit of just $127 million on gross earnings of $373 million. Customer numbers were trending down, VIP numbers were falling, and the new management team confirmed that significant investment would be required to take the company forward.
A Bright Outlook
Echo has updated the market twice this year with positive business updates. Net profit is expected to be around $150 million, a 20% increase on 2013, and Echo is working on multiple fronts to boost profitability.
It is also still in the race to secure the right to develop a new casino in Brisbane as part of a $1.5 billion plan to improve its Brisbane and Gold Coast Casinos in order to boost VIP revenue in particular. The investment involves building an integrated casino and resort at both locations and should be funded by existing cashflow and the recent sale of its Townsville Casino.
Further to Run?
Even after the rise this year, Echo's share price is still 40% below its 2011 IPO price as a result of poor operational performance. If Echo can maintain this positive momentum into the 2015 financial year, the share price will continue to rise strongly. I imagine that if the group disappoints again, the share price will plummet and investors may lose faith in management.
