Is the worst over for Crown Resorts Ltd shareholders?

Crown Resorts Ltd (ASX:CWN) shares are trading at a steep discount to a year ago, but risks remain that it could go lower still.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published February 4, 2016 2:32 pm AEDT

It's been a rough couple of years for shareholders of Crown Resorts Ltd (ASX: CWN).

It all started at the start of 2014, the company had just come off one of the best years of share price growth in its history and analysts were getting excited about how much further it could run in 2014.

In fact, in 2013 Crown was the best-performing 'consumer discretionary' stock on the ASX as investors got caught up in the possibility of the company dominating the Macau gambling scene through its joint venture with one of Asia's most dominant property and casino tycoons.

Disappointing Returns

As we now know, the Macau and Asian investment as a whole has had a far more complicated run than many expected. Curbs on Chinese travellers entering the region, delayed openings, uncertainty surrounding the amount of gaming machines allocated to each new venue and a number of other smaller issues have decimated the value of the joint venture and profitability of the region as a whole.

High Expectations

Yet investors and analysts continue to stick with the company. In my view this has to do with the inherent nature of people to gamble, not on the stock market but in real life.

Numbers released on Monday show that revenue continues to decline in Macau with the city's Gaming Bureau reporting that casino revenue last month fell 21.4% from a year earlier, while an analysis from Fitch found that Macau's gross gaming revenue declined by 39% year-on-year to $US22.64 billion in 2015.

This means that the income flow from the Macau operations to Crown's headquarters in Australia is expected to trend lower, while the Australian operations are expected to remain strong.

The Year Ahead

Crown is expected to release its half-year results on February 25 and investors will be looking for proof that the company is on track to hit analysts' estimates of:

Full year net profit of $470 million (down from $525 million last year)
Earnings per share of 64 cents for the full year
Interim dividend per share of 18 cents per share (or more)

Sadly income is expected to be meaningfully lower this year and it appears anyone's guess if it'll recover in 2017. It seems that the direction of the share price and profits will depend significantly on the success (or otherwise) of its Asian investments.

The forecasts above place Crown on a forward price to earnings ratio of 19 and dividend yield of 3%, by no means 'cheap' or high-yielding compared to companies in other sectors on the ASX.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.