What does 2015 hold for gaming and casino stocks? Regularly, you would expect them to grow the most when consumers have more money to use for leisure and travelling.
So with the Australian economy slowed by a decrease in mining activity and energy stocks pummeled from low oil prices, company budgets and staff salaries could take a hit over the next year.
Where does that leave the two companies below in their outlook? Could investors pick up some buys while these stocks are adjusting to this new economic climate?
Echo Entertainment Group Ltd (ASX: EGP) is the operator of such casinos as The Star in Sydney, the Treasury in Brisbane and Jupiters in the Gold Coast. Currently, it has no competition in the three cities, but that could be changing over the next 1 – 5 years as the NSW and Queensland state governments will be creating new gambling licences.
The stock made a great 58% run up since April, but that was just back up to where it was in early 2013 when Crown Resorts Ltd (ASX: CWN) started its plans to enter the Sydney and Brisbane markets. In 2015, the showdown for the development of a new integrated resort in Brisbane between the two companies may come to a head. The state government will decide which development plan offers the most to the city, tourism and business.
If Echo can win the decision, it will most likely keep its exclusive market there intact. Things are not certain yet, so the stock could be held back until a winning bid is declared.
— Crown Resorts Ltd does have its advantages of having billionaire James Packer heading the company and extensive business connections and experience. I believe this company has more of a growth plan in place, whereas Echo is about maintaining its present markets. That said, Crown's Australia casinos have seen weak revenues recently. On top of that, the money spinning joint venture casino business Crown has in Macau has hit some snags as the Chinese government is trying to clean up excessive money flows through the gambling mecca to stem corruption and overseas capital flight. Mass market gamblers have to replace lost VIP player revenue.
More gaming venues are planned for in Asia, Las Vegas and Sydney, but each will have to show how it adds to earnings and margins. Already down about 17% over the past six months, Crown's stock has found some investor support around $12.60. It may take 3 – 5 years to fully see a number of its planned casinos open, but I would stick with Crown over Echo as a stronger growth stock over the long term.
