The Motley Fool

Crown Resorts Ltd vs. Star Entertainment Group Ltd: Buy, Hold, or Sell?

Two of the largest casino operators in Australia, Crown Resorts Ltd (ASX: CWN) and Star Entertainment Group Ltd (ASX: SGR) formerly known as Echo Entertainment Group Ltd (ASX: EGP) are competing against each other to capture new opportunities. The falling Australian dollar and the expected rising number of inbound tourists from Asia are heating the gambling and entertainment market as casino operators prepare for more customers?

Major new expenditures are being planned by both Crown and Star to refurbish existing casinos and develop new sites over the next few years. This makes the shares of both companies appealing as they are likely to experience higher growth and profitability in the coming years.

As the managing director and chief executive officer Matt Bekier of the Star Entertainment Group made the following comments at the company’s annual general meeting on 4 November, 2015:

“I would now like to touch briefly on tourism as we believe this represents a significant opportunity to us as a company, and in fact for all of Australia. The increasing wave of Asian tourism, particularly from China, has the potential to be our next mining boom. We are looking at a trend of long duration, driven by the rapid expansion of an affluent middle-class that is increasingly seeking to experience the world. And Australia is an exceptionally desirable destination for this segment of the population.”

A brief comparison of both companies is as follows:

P/E ratio Price-to-Book ratio EBIT margin Return on Equity Forecast Earnings per Share growth for FY 16 Major New Project
Crown Resorts Ltd                      (ASX: CWN) 22.07 1.92 18.56% 9.05% +3.27% Sydney Barangaroo Casino.
Star Entertainment Group Ltd (ASX: SGR) 23.69 1.33 13.59% 5.67% +38% Queen’s Wharf Brisbane Casino.

Source: Google Finance, Commsec, Morningstar.

Crown has higher Earnings before Interest and Tax (EBIT) margin and higher return on equity as compared to Star. While Star has a higher growth rate as indicated by forecast earnings per share. Crown’s business problems in Macau are one possible reason for the lower forecast growth rate. From the valuation perspective both shares appear slightly overvalued with Crown being more overvalued than Star as per the price to book ratio.

Foolish takeaway

It is too early to predict which share is better than the other as both companies are developing new projects and trying to resolve current business issues. Although Star’s recent refurbishment of Sydney’s Star Casino is resulting in improved business performance. The financial indicators are not giving any company a clear advantage over the other, but rather both look appealing. So a Foolish investor may want to watch these shares as they may prove to be winners.

5 stocks under $5

We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.

And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!

*Extreme Opportunities returns as of June 5th 2020

Motley Fool contributor Qaiser Malik has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Related Articles...