If you're looking for companies with strong cashflows and long-term growth potential, you shouldn't look past the two listed gaming and casino operators of SkyCity Entertainment (ASX: SKC) and Crown Resorts Limited (ASX: CWN).
Auckland-based SkyCity is a recent addition to the S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO), while James Packer controlled Crown Resorts has a rich history as Australia's premier gaming empire. But which company is the most attractive heading into 2014?
Both companies offer significant long-term growth potential after winning approvals for expansions and redevelopments in 2013, but are of slightly different scale.
With a market capitalisation of over $12 billion, Crown Resorts operates on a global scale, with the power and brand recognition to develop new markets as opportunities arise.
The company has exposure in the U.K and Australia as well as the gaming mecca of Macau through its Melco Crown Entertainment joint venture.
Macau offers massive potential for Crown Resorts, with one Hong Kong analyst forecasting a doubling of gaming revenues by 2018, from US$40 billion per year today. In addition to this, Crown Resorts' plan for a $1.5 billion resort in Barangaroo, Sydney, and a new development in Sri Lanka will significantly build the brand.
SkyCity is tiny in comparison, with a market capitalisation of just $2 billion; however the company can punch above its weight and follows a more localised strategy focusing on Australia and New Zealand.
Over the next six years, SkyCity has plans to invest $690 million on two significant casino expansions in Auckland and Adelaide. Both projects will see the company funding the construction of local convention centres in exchange for legislation extending casino licences and allowing more electronic gaming machines and gaming tables.
The terms of the deals should see strong increases in revenues for SkyCity once the developments are complete, having eliminated many of the bottle-necks previously constraining growth.
Foolish takeaway
So which company should you buy? It's a close call. Both companies offer attractive growth prospects with Crown Resorts' international potential much stronger than SkyCity.
However, a basic comparison of price to earnings ratio suggests that SkyCity offers the best current value with a P/E ratio of 19 to Crown Resorts' 25. Shares in Crown rocketed 60% in 2013 whereas SkyCity is up a comparatively small 19%.
