The share price of casino operator Crown Resorts Ltd (ASX: CWN) has fallen 18% in the last year to $11.66 which could arguably make the stock a more appealing investment opportunity today.
Here are three reasons for positivity about the long-term outlook for the gambling and entertainment group…
Still highly profitable – Despite reporting an 18% decline in normalised profit after tax to $525.5 million for the 12 months ending June 30, Crown remains a highly profitable company. The Australian operations remain high quality with VIP revenue growing 42% to $956 million.
The disappointment amongst the group's results was its share of profit from its 34% stake in Melco Crown, which recorded a 45% normalised profit fall to $130 million due to its exposure to the under pressure Macau region.
Upside potential – While Macau is currently going through a period of adjustment which is adversely affecting not just Melco Crown but all casino operators in the region, there remains plenty of potential for Crown's investment to be a long-term winner given its exposure to the burgeoning Chinese middle class.
The group also enjoys upside potential closer to home in the form of the Barangaroo development in Sydney.
Outlook – Crown's recent Annual General Meeting (AGM) provided an opportunity for management to update investors on the group's recent trading performance. In the current financial year to October 18, revenue across the main gaming floor of its Australian casinos is up 10% on the prior corresponding period; non-gaming revenue grew by 1%. Disappointingly, Macau continues to struggle.
A better buy?
For investors willing to take on more risk in the form of the opaque outlook for Crown's Macau operations, the upside could be exciting considering the stock is trading on a 2017 forecast price-to-earnings ratio of just 15x. In contrast, for more risk-averse investors, the more dependable Australian and New Zealand operations of Echo Entertainment Group Ltd (ASX: EGP) and SKYCITY Entertainment Group Limited-Ord (ASX: SKC) may be preferable for exposure to the casino sector.
