Jackpot? Crown Resorts Ltd announces restructure to improve shareholder value

James Packer has instrumented a radical overhaul of Crown Resorts Ltd (ASX:CWN).

Tim McArthur

Published June 16, 2016 4:03 pm AEST

What: At 5:30pm on Wednesday evening casino operator Crown Resorts Ltd (ASX: CWN) which is majority owned by billionaire James Packer announced a number of major initiatives to enhance strategic shareholder value.

Here are the key details: The board has identified a number of structural and capital management initiatives including –

Pursuing a demerger of certain international investments to create a separately listed holding company
Adopting a new dividend policy of paying 100% of normalised net profit after tax
Exploring a potential initial public offering (IPO) of a 49% interest in a property trust which would own Crown Resorts' Australian hotels (excluding Crown Towers Melbourne) with Crown Resorts retaining a 51% interest

Now What: Crown's share price has significantly underperformed compared to peers SKYCITY Entertainment Limited-Ord (ASX: SKC) and Star Entertainment Group Ltd (ASX: SGR) over the past 12 months. Crown is down 13%, whilst SKYCITY and Star are up 9% and 26% respectively.

According to Crown's Chairman Mr Robert Rankin, "The Board has for some time been looking to address what we believe to be a material undervaluation by the market of Crown Resorts' assets, due to a traditional consolidated (or amalgamated) structure. In particular, we believe that Crown Resorts' extremely high quality Australian resorts are not being fully valued and the Crown Resorts share price has been highly correlated to the performance of its investment in Macau."

According to data supplied by Reuters, the average analyst consensus estimate for Crown's earnings per share in financial year 2017 is 67 cents. With the share price closing yesterday's trading session at $11.26, this implies a price-to-earnings multiple of nearly 17 times.

While there are numerous examples of demergers enhancing shareholder value, investors need to remember that Australian casino operators such as Crown hold licenses for set periods of time to operate their casino assets. These are not perpetuity investments and therefore need to be valued accordingly.

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