There is most likely quite a few differences between the investors who thought WorleyParsons Limited (ASX: WOR) was a good buy in 2014, and those who thought Crown Resorts Ltd (ASX: CWN) would be good for their nest egg.
I'm confident they'll have one thing in common though – they're likely to be pretty unhappy with the way the past twelve months has hit their share values.
WorleyParsons has dropped nearly 42%, while Crown has slipped almost 28% since this time last year.
So what's going on?
First, Worley has been impacted by the decline in mining investment over recent years, and the new ultra-low prices of iron ore and oil are going to have a pretty hefty impact on the amount of work available for this services company going forwards.
Worley's profit after tax dropped 18% in financial year 2014 and with the amount of new resources projects at their lowest number and value in over a decade, Worley is competing for a rapidly shrinking pool of work.
Recent falls in the price of iron ore and oil are going to cause major reductions in capital expenditure by oil producers in the near future, and these latest developments look like they could be the final nail in the coffin for mining services companies.
However on the plus side, WorleyParsons is afforded significant benefits by its size, international operations, and clientele, which include Woodside Petroleum Limited (ASX: WPL) and the world's largest iron ore producer Vale SA, among others.
It's a slightly different story at Crown Resorts.
Investors appear to be bailing out because of the company's decision to pay the Victorian State Government $250 million dollars in return for a revocation of the VIP gambling 'super tax' and the ability to install additional poker machines and gambling tables.
Crown will also have to pay an additional $100 million in financial year 2023 if normalised gaming revenue grows faster than 4% per annum (compound) from 2014 to 2023, and a further $100 million on top of that, also in 2023, if revenue grows faster than 4.7% (compound) during that time.
Crown also commits to paying $250 million to the state in 2033, as well as paying a minimum of $35 million per annum in gaming taxes to the state over the 6-year period commencing from the 2016 financial year.
It sounds like a lot of money when you put all those figures on the same page, but investors need to remember that Crown is targeting big earnings growth, and only the initial fee of $250 million will be payable this year.
Assuming profit tracks in line with revenue growth (which is not a given), 4% growth compounded from financial year 2014 through to 2023 will see Crown taking home roughly an extra $250 million every single year from then which should well and truly cover its costs.
Crown had an outstanding 2014 and recent developments, including a recent joint venture with online company BetEasy, continue to leave me confident in the company's long-term future – particularly if the removal of the 'high-roller' tax can be capitalised to the extent management wants to.
