Sent packing: Why the Crown Resorts Limited share price just hit a 52-week low

Crown Resorts Limited (ASX: CWN) shares are down 2.2% this afternoon to $11.63 a share as investors continue to hit the sell button after a couple of weaker-than-expected trading updates and on the back of the headline-making problems of its major shareholder James Packer.

For the fiscal year ending June 30 2018, Crown reported an adjusted net profit of $386.8 million, with normalised revenue across its Australian resorts up 10.6% to $3,124 million. The group also paid a final dividend of 30 cents per share taking total dividends for the year to 60 cents per share. This places the group on a trailing yield of 5.15% with dividends recently franked to 60%.

Basic earnings per share also came in at 81.16 cents for fiscal 2018, which means the group trades on just 14.3x trailing earnings per share.

On face value then it seems quite cheap, and trading roughly in line with peers such as SKYCITY Entertainment Group Limited (ASX: SKC).

On November 1 2018 Crown also provided the market a slightly weaker-than-expected trading updated for the period July 1 2018 to October 28 2018 in revealing that revenue at its main floor Australian gaming resorts (excluding VIP) was down 0.6% on the prior corresponding period. While Australian resorts non-gaming revenue was up 3.5%.

Crown has a significant casino and resort in Perth, but its key asset is Crown Melbourne. It has a competitive advantage in that it has no other casino rival in Melbourne competing for VIP turnover, while its luxury hotels occupancy rate is exceptionally strong thanks to the “very strong demand” from overseas visitors in particular. It’s also exposed to growing international tourism.

However, one problem has been the fallout from the 2017 arrest of Crown staff in China for illegally promoting gambling. This has probably hurt the group’s reputation with VIP Chinese players and could still have a medium-term effect on operations.

Subsequent to the China arrests, James Packer quit as a director of Crown in March 2018 blaming mental health issues, although he still owns nearly half the company.

However, Mr Packer’s self-confessed mental health problems probably are not helping inspire confidence in the business. Crown also carries debt around $1.49 billion, but actually has a strong net cash position of $221 million.

With the shares on a reasonable valuation and offering a big yield it could be worth a look for bargain hunters given its investments in growth projects like Crown Sydney and the dominant position of Crown Melbourne.

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Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. The Motley Fool Australia has recommended Sky City Entertainment Group Ltd. 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 Scott Phillips.

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