Reporting season is a great time to look over results and consider if a business is now a buy.
If a business reports below expectations then its share price may drop and it could become an opportunity.
Crown Resorts Ltd (ASX: CWN) reported last week and its share price quickly dropped from $13.32 to today's $11.50. As a recap, let's look at some of the key numbers:
- VIP program play turnover down 48.9%
- Normalised revenue down 12.7%
- Normalised earnings before interest, tax, depreciation and amortisation down 10.7%
- Normalised net profit after tax attributable to the parent down 15.5%
If we go by the normalised numbers, this wasn't a great result.
The key problem seems to be that VIP gaming revenue is falling. The Chinese initiative to stop Crown allegedly advertising gambling to Chinese nationals is working. If the VIP gamers aren't at the casino gambling they're also not staying in the hotel nor eating at the restaurants. Hopefully this is a short-term trend.
There were a few pleasing aspects to the report. The Crown Digital segment contains Crown's investment in Crownbet and Betfair Australasia. This segment grew revenue by 31.9% and earnings before interest and tax by 64.7%.
Crown's non-casino revenue in Melbourne and Perth grew by 6.5%. This is a good sign that Crown is still seen as a 'destination', even if VIP gamers are disappearing.
Growth plans
The main project for Crown over the next few years is to complete its Sydney Barangaroo resort, which should be finished by 2021. Crown expects to spend $698 million in FY19 and $577 million in FY20 on Crown Sydney. It should add a lot of revenue and profit to the group once finished. However, the international VIPs will need to keep visiting to make it as worthwhile as possible.
Foolish takeaway
Crown is currently trading at 21x FY18's estimated earnings with a partially franked committed dividend yield of 5.22%. I think it is a buy for investors willing to hold long-term until Crown Sydney is completed, however that's a long way away.
