What’s JP Morgan saying about the Crown Casino (ASX:CWN) saga?

JPM has weighed in on the investment debate.

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Key points

  • Crown shares are now trading back up near 52-week highs after rebounding last year
  • JP Morgan has weighed in and reckons there is exciting times ahead for Crown
  • The broker values the company at $15 per share and reckons Star Entertainment might get involved in the takeover debate once again
  • The Crown share price has climbed more than 22% in the last year.

Shares in gaming and entertainment giant Crown Resorts Ltd (ASX: CWN) are edging lower today and now trade less than 1% in the red at $12.52.

The Crown share price has made a gradual recovery from its single year lows back in August, having emerged relatively unscathed from a series of scandals last year.

Crown is now trading up near its 52-week highs once more, having marched its way up the steps from its lows.

Now the team at JP Morgan has stepped into the ring and weighed in on the Crown investment debate as well. Here’s what the leading broker had to say about the outlook for Crown investors.

What’s JPM saying about the Crown saga?

The broker released a report entitled “Fourth Round Bell: off the ropes to talk about knockout price”, outlining its view on the bid to purchase Crown’s assets.

The bidder, as it turns out, is the asset management and private equity giant Blackstone, which recently revised its offer to $13.10 per share up from $12.50 last year.

Previously Crown’s board was unwilling to engage in any takeover or buyout proposals, however, the question on its willingness to participate in talks has now been removed according to JP Morgan.

Analysts at the firm say that “rigur remains” behind its $15 price target, however, “given the value of the real estate has always been of a highest & best use nature, there remains plenty of value to unlock”.

The firm also says that Crown has “fewer skeletons in the closet than feared” seeing as Blackstone was granted “non-public due diligence”.

Moreover, seeing the bidder increase its offer by circa 5% alleviates the fear of any lingering surprises. With this newfound momentum, JPM reckons that Crown’s prior hesitance on engaging has now changed, and now believes The Star Entertainment Group Ltd (ASX SGR) “is still likely to get involved”.

As previously reported by The Motley Fool, all eyes will be on Star in the coming periods following the withdrawal of its competing offer last year.

What else did the broker say?

Aside from this, JPM commented on Crown’s recent investor day that outlined the investment opportunity in its Barangaroo complex.

The broker says that “the opportunity & roadmap to move forward with regulators presented near-term earnings upgrades for re-opening”.

Regarding valuation, the broker opted to assess Crown’s worth based on an op-co/prop-co structure. This is simply a way to value a company by dividing it into two parts.

The first concerns operating assets and operating lines in the business (op-co); whereas the second part involves income generating assets like real estate and infrastructure (prop-co).

On its $15 per share valuation, JPM says “we believe the most suitable way to assess CWN’s value is via op-co/prop-co structure. Our valuation is based on: 1) 35% of FY23E EBITDA to derive rent payment & a cap rate of 5%, valuation of $5.5bn & 2) Core operating business less rent on a 10x FY23E EV/EBITDA multiple; valuation of $5.1bn. Retain Overweight; PT A$15.00”.

As such, JP Morgan remains overweight on Crown, seeing as Barangaroo is a “long-term growth driver”, and due to the “potential realisation of fundamental value within the real estate property value of [Crown’s] assets and its core operating business”.

The Crown share price has climbed more than 22% in the last year after rallying 13% this past month. Since we began the new year, shares have spiked 5% and lead the broad indices.

The author has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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