The first bit of good news for months from Sydney-based casino operator Echo Entertainment Group (EGP) saw the share price rise strongly yesterday.
Echo shares ended up 7% at $2.965, after they touched a day’s high of $3.09, just 6c shy of the 52 week high of $3.15.
Driving the rebound wasn’t more takeover talk (as we have seen in the past year with talk about a bid coming from James Packer’s Crown).
No, it was a surprisingly solid upgrade to earnings estimates for 2013-14.
Echo said its cost-cutting program and focus on earnings will boost full year earnings by between $19 million to $24 million, or up to 6% higher than analysts were expecting.
The company said in a statement to the ASX yesterday that normalised earnings before interest, tax, depreciation and amortisation (EDITDA) for the year ending June 30, should come in within the range of $430 million to $435 million.
That estimate compares with consensus of normalised EBITDA of $411 million, according to Bloomberg data.
Echo, which operates casinos in Sydney, Brisbane and the Gold Coast, said its normalised net profit would be in the range of $150 million to $153 million.
That compares to normalised net profit for the 2012-13 year of just on $127 million, which suggests growth of up to 21%.
Normalised earnings, as classified by casinos, attempts to remove volatility associated with the high roller business where there can be large swings in revenue and profits associated with larger than expected wins or losses by these big punters.
EGP 1Y – Echo shares up sharply on earnings upgrade
Echo said its "cost optimisation program and improved profit focus continue to support earnings growth in the second half of the financial year”. (In other words, the cost-cutting seems to be working and will continue.)
Echo started a $60 million cost-cut program under previous chief executive John Redmond, who resigned in February. Echo said about $40 million of that was realised in the 2012-13 year.
"Echo now expects to deliver operating expenditure around $870 million for 2013-14," the company said yesterday.
The company’s operating expenditure in 2012-13 was $868.7 million, which suggests the company was successful in stemming a rise in costs in the current year.
March quarter revenue trends, which were announced on April 11, coinciding with the formal appointment of new CEO Matt Bekier "continue to prevail to date", the company said.
In the March quarter "normalised gross revenue grew by 10.2 per cent on the prior comparable period (+12.1 per cent on an actual basis) for the five months ended 31 May 2014," Echo said.
"For the domestic business, excluding the VIP rebate business, revenue grew 9.3 per cent on the prior comparable period, with gaming revenues in both Sydney and Queensland showing growth during this five month period."
Up to yesterday, Echo shares were down by just over 7%. The rise seen in the wake of the update has all but wiped out that fall.
Echo will announce its full year results on August 13.
