Australia | Oct 31 2012
– Crown's trading update better than expected
– Gaming and non-gaming numbers good given tough consumer backdrop
– Forecasts and price targets lifted
– Buy ratings continue to dominate
By Chris Shaw
Given a challenging consumer backdrop, Crown's ((CWN)) AGM update of an 8% increase in main floor gaming and a 5.9% increase in non-gaming were well received by the market. The gaming floor increase implies some market share gains given Victorian gaming machine revenues fell for the July to September period.
The update was generally better than brokers had forecast, as Deutsche Bank was looking for respective increases of 5.9% and 4.3% for the full year , while BA Merrill Lynch also noted the numbers were slightly above what had been expected.
This has prompted BA-ML to make minor increases to earnings estimates for FY13, while Credit Suisse has lifted its earnings per share (EPS) forecasts by 3% in FY13 and by almost 5% in FY14. Consensus EPS forecasts for Crown according to the FNArena database now stand at 61.3c for FY13 and 71.7c for FY14.
A positive for Citi was that the update indicated non-VIP trading was slightly better than expected for the year so far, something the broker suggests justifies the recent spending on refurbishing Crown's casinos.
Credit Suisse also pointed out Crown's VIP numbers for September from its MPEL assets in Macau were solid, supporting an increase in the broker's valuation of the assets and as a result its valuation of Crown.
This is reflected in an increase in price target, Credit Suisse lifting its target for Crown to $10.10 from $8.80. Others have followed suit, BA-ML lifting its price target to $11.34 from $10.64 and JP Morgan to $10.25 from $10.00.
The consensus target for Crown according to the FNArena database is now $10.51, up from $10.26 prior to the AGM.
With the share price more than 10% below this consensus price target brokers continue to see value, Crown being rated as Buy by six of the eight brokers in the database and Hold by the other two. Credit Suisse is one with a Hold rating, the broker waiting for approval from the New South Wales and Queensland Governments for Crown to lift its stake in Echo Entertainment ((EGP)) above 10% before reviewing its rating.
For BA-ML the value in Crown comes form the combination of a quality domestic franchise and international growth options, though development opportunities in Macau and the Philippines as well as in Sydney via the Barangaroo project and in Perth.
JP Morgan sees some potential downside risk to Crown's VIP numbers, but even allowing for this the broker estimates valuation upside relative to the current share price is more than 20% at present. JP Morgan agrees potential catalysts for the stock would be further news with respect to Crown's stake in Echo and signs a VIP facility will be approved at Barangaroo.
In a stronger overall market shares in Crown today are higher and as at 12.30pm the stock was up 18c at $9.56. Over the past year Crown has traded in a range of $7.83 to $9.70.
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