Is there a re-rating of James Packer’s Crown gaming business underway?
Mr Packer himself was dethroned as Australia’s richest man yesterday in the annual BRW survey of our 200 richest executives by Twiggy Forest of Fortescue Metals. Mr Packer has a small stake in Fortescue.
Crown shares were weaker yesterday as the day went on after Citigroup downgraded its earnings forecasts, and news emerged of a strategic review of some assets.
Crown shares were off around 8c in the morning but this loss grew to a 30c deficit when the shares finished trading at $10.88, still around a dollar above the all time low of $9.87 reached earlier in the month.
This was in a market up more than 1%.
It could be more a case of the company reacting to what is essentially a re-rating by credit markets of companies with a lot of debt. Crown has that as it has sought to grow in Asia, Canada, the US and at Crown in Melbourne where a big refurbishment program is underway.
Citigroup said in its circular yesterday:
"We’ve lowered CWN forecasts on the basis of further consideration of information in the 1H08 result. We’ve lowered FY08e core eps by 9% to 55cps, FY09e by 9% to 63.7cps, and FY10e by 6% to 82.2cps. The reasons for the revision are threefold:
"1. Canadian JV — Capital structure carries more debt than previously anticipated, with both JV partners investments partly structured as a highyield debt instrument. Pre-opening costs and ramp-up of Starlight and permanent Burnaby casinos also will likely see lower earnings in FY08 and FY09 than expected.
"2. Renovation disruption at Crown Melbourne — 1H08 saw grind revenues grow 8%, however renovation was largely confined to non-gaming in that half. As Gaming areas are updated, it will be difficult to sustain that rate of growth. CWN remains committed to maintaining positive growth through the renovation, but we’ve scaled our expectations back.
"3. Tax rate 23% — Guidance at 1H08 was that effective tax rate will be 23%, higher than our forecast of 20% and we’ve lifted tax expense as a result."
"Remains a Buy — CWN’s near term earnings are sourced from principally grind properties, where Gaming has proven to be defensive in downturns. Longer term growth is offered through Macau market growth and the Cannery acquisition in CY09."
The credit crunch has already forced Packer partner, Lachie Murdoch to hunt for finance for equity his side of the $3.3 billion joint bid for Consolidated Media, the other half of Packer’s old PBL Empire.
Now there are question marks over Crown, Packer’s gaming business.
There was a story this week in the Australian quoting a broker’s report which said Packer’s Macau casino was making money off the back of expensive high roller junkets. It didn’t mention whether the profits were after paying expenses, but indicated patronage in the high roller rooms had picked up.
There was no further work by the broker on whether this was cutting business at the high roller rooms of Crown’s two Australian casinos at Crown in Melbourne and Burswood in Perth
A SMH.com column yesterday reported that the ambitious expansion plans in Las Vegas seemed to have hit an obstacle.
"Just when his Crown Macau casino is coming good, James Packer’s US gaming plans have suffered a setback with the site for the $US5 billion resort project dubbed Las Vegas Towers being put up for sale.
"Crown chairman Packer and his US partner in the project Chris Milam had already made around $A100 million in payments to Archon Corp which owns the site on the famous Las Vegas "Strip".
"But now CBRE confirms the site is up for sale. Some $US63 million has been reported to be non-refundable and some $US30 million was not going to the purchase price.
"A spokesman for Crown said he was not aware of the site being up for sale. He said a strategic review of all Crown’s assets is now underway."
It was reported earlier this month that Packer and Milam had not settled on the 27 acre site on the Strip as originally planned last year but were continuing progress payments. Under the agreement they had to settle by June 30.
You’d have to ask why a strategic review of assets at Crown would be needed so soon after the split up of the old PBL business last November into Crown and Cons Media.
After all the same bunch of people: James Packer, Crown International CEO, Rowen Craigie, plus the board, are the same people who signed off on the Crown accounts for December 31 and in the split.
Perhaps it’s the Las Vegas plans that are being reviewed.
The impending sale of the site in Las Vegas raises questions about the ambitious plans for a $US5 billion casino, hotel and retail development between Packer and Milam on the site.
Las Vegas and Nevada generally are the home of the subprime crisis in the US: the collapse has hit the city and state harder than any other part of the US and gaming revenues fell in January for the first time in five years.
