Why Crown Resorts is Trading at Record Lows

It’s been a pretty bad day for Crown Resorts [ASX:CWN] shareholders. The beleaguered gaming and entertainment giant is way down from the highs of early 2014. As at 3:16pm, it’s trading down 1.09% at $9.96. It’s lost nearly 14% in the last month alone. And over 21% for the year to date.

CWN Crown Resorts share price 24 09 2015
Source: Google Finance
[Click to enlarge]

The Crown Resorts share price took a hit when Crown released its disappointing FY15 results. ‘Normalised’ (underlying) NPAT was down 17.9%. ‘Reported’ (statutory) NPAT was down 36.5%. Reported NPAT attributable to the parent company was down 41.3%. CWE’s share of the Melco Crown joint venture was also down by 57.6%, to just $122 million. At the time, CEO Rowen Craigie said that ‘the decline in MCE’s result was attributable to weak market conditions in Macau.

But those results came out over a month ago. We can’t really blame that anymore. Today’s drop was courtesy of a fresh announcement from Deutsche Bank.

Deutsche Bank picked up on that detail about Macau. And on the back of that, they’ve decided to downgrade their earnings forecast for Crown.

The Australian reported that Deutsche Bank analyst Mark Wilson said the drop was driven by junkets reducing lending to preserve cage cash to meet redemption demands.

Not everyone is particularly negative about Crown’s future, though. According to Bloomberg’s aggregated list, of 14 analysts, only two rate Crown a sell. Morningstar equity analyst Brian Han is a big fan.

Last month, he said that Crown’s assets in Australia are in a uniquely strong position, thanks to the local regulatory and licensing environment.

These integrated, Australian casino-entertainment-hotel complexes are also backed by long-term casino licences, with the Melbourne one expiring in 2050, and Perth expiring in 2060. The onerous entry barriers from having these casino licences mean that Crown Resorts boasts a narrow economic moat,’ wrote Han.

Wondering whether Crown is a bargain, now that it’s half the price it once was? That depends on whether you think it’s oversold, or just plain bad value. And that can be difficult to work out.

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Eva Mellors,
Contributor, Money Morning


Money Morning Australia