Australia has three large pure-play casino companies listed on the ASX. Crown Resorts Ltd (ASX: CWN) owns the Melbourne casino, Perth casino, a casino in London, and a stake in a resort and casino complex in Macau. Echo Entertainment Group Ltd (ASX: EGP) owns The Star casino in Sydney, the Treasury Brisbane, Jupiters casino and hotel in Townsville, Gold Coast Convention Centre, and the Townsville Entertainment and Convention Centre. Meanwhile, Sky City Entertainment Group Limited-Ord (ASX: SKC) operates casinos in Auckland, Queenstown, and Hamilton in New Zealand, and Adelaide and Darwin in Australia.
Growth expectations
Between them, these three companies are expected to invest over $4 billion in new or upgraded facilities over the next five to seven years. The investment will be primarily focussed on attracting more Asian VIP gamblers to Australia and New Zealand instead of the increasingly popular, and geographically closer, Macau and Singapore hotspots.
Crown has the fullest growth pipeline with new casinos approved or planned for Sydney, Sri Lanka, and Tokyo, while it is also upgrading facilities in Melbourne and Perth.
Skycity is in the process of upgrading its Adelaide and Auckland casinos, and is planning to build a new Auckland Convention Centre. Adelaide and Auckland have long been two of the best-returning casinos in Australia and New Zealand. The upgrades should ensure these returns continue in coming years.
Similarly, Echo has announced a $1.5 billion plan to improve its Brisbane and Gold Coast casinos to boost VIP revenue. The investment involves building an integrated casino and resort at both locations and should be funded by existing cashflows and the recent sale of its Townsville casino.
Share market returns
Over five years, the performance of the three companies couldn't be more different. Echo shares are down nearly 50%, Skycity shares are up 70%, while Crown shares are up 140%. The share price performance mirrors Echo's inability to grow shareholder returns and lack of growth opportunities.
Outlook
The next key decision affecting all three companies will be the announcement in the next 18 months of the chosen builder for the new Brisbane city casino. All three companies have been shortlisted and if the tender is awarded to Skycity or Crown, I believe shareholders in Echo will see more share price pain.
Foolish takeaway
The share price performance says it all. Crown, with the best growth opportunities and some of the best placed and performing casinos, appears to be Australia's best casino company choice. The next best is clearly Skycity, which has the best performing casinos (from a return on capital standpoint) and some decent growth opportunities in Adelaide and Auckland, while Echo is lagging due to poorly performing casinos and a real lack of good growth options.
