Crown Resorts Ltd (ASX: CWN) is the Australian-listed owner of international casinos and hotels, as well as a joint-venture partner in an extremely exciting Asian casino group. Here are three reasons why I believe it's share price will be a lot higher in years to come.
1. Growth, growth, growth and an excellent investment
The Crown story over the next five years will all be about its execution of growth opportunities. Crown will be investing in a new hotel complex in Perth, updating its flagship Melbourne Casino, building a new luxury complex in Sydney, opening a casino in Sri Lanka, and plans on building new casinos through Asia via its Melco Crown joint venture.
It is also vying for the right to build a new casino in Brisbane city in what will likely be a hotly contested battle with Echo Entertainment Group Ltd (ASX: EGP).
2. Australian growth is already funded
Back in 2006, Crown chairman James Packer invested $600 million of company funds in a joint venture with Melco Group to initially open a casino in Macau. The joint venture has been wildly successful, and Crown's stake is now worth over $8 billion. More importantly though, Melco Crown will start to pay dividends (totalling 30% of earnings) from next financial year. Crown's income from this should total over $400 million by 2018, which should negate the need for a capital raising to fund growth initiatives.
3. Investors are placing very little value on Australian assets
Crown has a market capitalisation of nearly $13 billion. Of this, roughly $8 billion is the value of the Melco Crown joint venture, meaning that investors are placing a value of $5 billion on Crown's Australian assets that generated over $270 million in profit last year. This earnings stream isn't likely to be challenged any time soon, due to Crown's long-term exclusive casino licences in Perth and Melbourne.
Foolish takeaway
Crown is currently trading on a price-to-earnings ratio of around 21 after a big run up in the share price from $11.50 in June last year to $17.55 as of Friday. Investors are pricing in a lot of growth, but I think for long-term investors there is plenty of upside, especially considering the market appears to be undervaluing the Australian assets.
