Shares in casino operator Echo Entertainment (EGP) fell to a new all time low yesterday in the wake of the surprise resignation of CEO John Redmond and his departure back to the US, as well as a weak interim profit report.
The shares hit $2.13, the lowest the shares have been since listing several years ago after the split from then parent, Tabcorp (TAH) (which is due to report later today).
They ended down more than 6% on the day at $2.18.
Echo said Mr Redmond will be replaced by the company’s chief financial officer Matt Bekier.
Reported net profit fell 30.5% to $46.1 million, due to a one-off financial expense.
"Normalised" profit ended up 1.3% at $71.5 million for the six months ended December 31. The result was just ahead of forecasts of $70 million.
Interim dividend was left unchanged at 4c a share.
In his final report, Mr Redmond said the company had made an “encouraging” start to the financial year.
“With the cost optimisation program largely complete, EBA [enterprise bargaining agreement] renegotiated at The Star and Treasury Brisbane and the new group loyalty program launched, Echo has the right platform to drive improvement in the operational performance of the assets, and a stronger return on investment at The Star,” Mr Redmond said in yesterday’s statement.
“While the Queensland properties have experienced soft revenues in 1H14, the modernisation of the regulatory environment for electronic gaming machines will help provide revenue momentum in the second half and into next year.”
‘Normalised‘ earnings before interest tax, depreciation and amortisation increased by 0.2% to $210.3 million, which was just below the market forecast for EBITDA of $211 million.
Yesterday’s 7% plus fall came on top of the existing 35% drop in Echo shares over the past year, thanks to losing out to James Packer’s Crown in the Sydney casino battle, and facing Crown’s possible involvement in a new Brisbane gambling palace.
EGP 1Y – Echo loses CEO, reveals weak result, shares tank
In Queensland, Echo has also been forced on the defensive following a decision by the Newman government to open up the state to more casinos.
The company has countered with plans for a new casino, retail and entertainment complex on the banks of the Brisbane river, adjacent to its Treasury Casino.
Echo sold off its Townsville casino a fortnight ago to Colonial Leisure Group for $70 million.
‘Normalised’ revenue, which removes volatility associated with big spending VIPs, fell 4.8% in the December half year to $929.6 million, due to weak consumer spending and a higher win rate among high rollers. Gross revenue was down 7.3% to $901 million.
And looking at how the company’s core business, gambling, did in the six months, it is easy to explain the weak revenues and earnings. For example, revenue from table games and poker machines fell 7.4% and 2.8% respectively.
And gross revenue from VIP players fell 20.5%. On a normalised basis, this revenue fell 9%. That means high rollers, who generate big, but volatile profits, stayed away from the group’s casinos in the half year.
But non-gaming revenue from entertainment, accommodation and restaurants rose 6.3%.
That means the casinos are getting a lot of foot traffic and spending from people who don’t use its casinos.
The Star casino in Sydney would be a prime example with its popular Lyric theatre attracting popular shows and lots of patrons. But they obviously spend on food and little on gaming or gambling.
Echo said the new CEO, Matt Bekier joined as CFO of Tabcorp in 2005 and moved to Echo following the demerger of the casino assets in June 2011.
“Matt [Bekier] knows the company and the Australian market exceptionally well and has been working closely with John in re-establishing a path towards profitable growth,” Mr O’Neill said. “The board is confident that Matt is the right person to lead the group forward on the foundations that," he said in yesterday’s statement.
The takeaway from this report is that Echo has a case of the staggers. it seems to be unpopular insofar as its core gambling businesses are concerned. It seems to be financially weak and lacks the firepower to resist Crown, and perhaps a bid from a foreign gambling group wanting a foothold in Australia.
