Should you take a punt on Crown Resorts Ltd now?

The integrated resorts operator is holding several strong high cards for growth, but can it get a few more for a winning hand?

Darryl Daté-Shappard

I started investing after finding a copy of Peter Lynch's "Beating the Street" in the English book section of a library in Japan, where I was living at the time in 1997. Seeing that regular people can find investment ideas just as easily as professionals, I used the philosophy of that book to invest in stocks in Japan, and later in Australia after moving in 2001. I also have experience in property investing, and went on to complete my masters degree in Applied Finance at QUT in Brisbane. I follow the investment style of Peter Lynch, Phillip Fisher and Warren Buffett-- knowing what you invest in, doing your homework to keep up with a stock's story and holding a healthy skepticism of what the stock market calls "value".

Published July 17, 2014 4:42 pm AEST

As a rule, gambling with your investment money is a no-no. However, investing in a gaming or casino stock can be lucrative. They are business-driven and make sure the odds are definitely in their favour for successful growth.

One stock that I keep on my investing radar is integrated resort and casino operator Crown Resorts Ltd (ASX: CWN). It is holding several good high cards, but is finding it a little difficult right now to complete a winning hand. The stock has trended down about 12% since early March, while the S&P/ASX 200 Index (ASX: ^XJO) is up around 2%. Here's what it is holding now.

— Weaker gaming. The Macau casino market, where it has its "City of Dreams" casino, has been soft recently because lower numbers of VIP players have reduced revenues. This is partly due to changes in money transfer restrictions by the Chinese government. It may be short term, but it is making the market anxious. Its Australian casinos haven't been exceptionally strong, either.

— New Sydney gaming licence. Earlier this month, the company was issued a restricted gaming licence for its proposed Crown Sydney hotel resort at the Barangaroo South development site, where Lend Lease Group (ASX: LLC) is constructing three towers.

This is for a 99-year term and doesn't permit pokies machines, but allows unlimited numbers of table games like roulette, blackjack, baccarat and automatic casino games. The development will take some time. Still, cracking open the Sydney market with a six-star hotel and VIP gaming venue will pay nice returns later on for the company and expand its Australian market.

— Upcoming Melco Crown casino. Another "City of Dreams" casino will be opening in Manila in the next year through its joint venture company, Melco Crown, which teams Crown up with Macau gambling-mogul Stanley Ho's company. Melco Crown will also be paying a regular and special dividend to Crown Resorts in the near future, so along with the revenues from the new casino, the company should get a boost in earnings from the joint venture.

Currently, the stock has a 17 price/earnings ratio, which is the middle of its historical average PE range. The dividend yield is 2.4% partially franked. Business expansion coming in the short and mid term is promising, especially with the possibility of Japan opening up to a new casino industry.

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