Crown losing its shine

Falling profits, flat revenues and a large capital expenditure program mean Crown is no bargain

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published February 22, 2013 12:51 pm AEDT

Casino operator, Crown Limited (ASX: CWN) has posted a 34% fall in net profit to $181 million for the six months to December 2012.

While revenues increased marginally, by 1.1% to $1,506 million, the company incurred a $52 million post-tax loss on the market value of its 10% shareholding in Echo Entertainment (ASX: EGP) and lower win rates on its VIP turnover compared to last year.

Crown owns casinos in Melbourne and Perth, a 33.7% interest in Melco Crown Entertainment, which owns and operates casino, gaming, hotel and entertainment facilities in Macau. Crown also has a holding in Aspinalls Club, which operates a casino in London, and is building another two in the UK, a holding in online betting site Betfair, and a 24.5% share of Cannery Casino Resorts LLC.

Crown has also proposed to build a $1 billion six star hotel resort at Barangaroo, on the Sydney waterfront, which will include 350 hotel rooms, restaurants, a retail precinct and VIP casino facilities. Crown has signed an agreement with developer Lend Lease (ASX: LLC) to jointly develop the project. Crown needs Echo's support (or a change of mind by the NSW government) to build a second casino in Sydney, with Echo holding the exclusive licence until 2019.

Foolish takeaway

For income-focused investors, Crown has announced an interim dividend of 18 cents, franked to 50%. The company is spending a large sum of money on capital projects, including Barangaroo, expanding and refurbishing its Crown Perth casino at a cost of around $568 million, while Melco Entertainment is also expanding. Trading on a trailing P/E ratio of close to 17 times, and paying a partly franked dividend yield around 3%, Crown is no bargain, and investors might want to reconsider a gamble on the company.

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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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