ASX code: CWN
Share price: $13.00
Industry: Consumer Services
Consensus forecast FY2017 Dividend: $0.57
Crown Resorts Group (ASX:CWN) is an international gaming and entertainment company with businesses spanning casinos, wagering and online gaming products. CWN’s key assets domestically include Crown Melbourne and Crown Perth, and internationally Crown Aspinalls in the UK and a 27% stake in Melco Crown Entertainment, which operates casinos in Macau.
When thinking of businesses paying a reasonable dividend yield, CWN is not the first company that typically springs to mind given the business has paid an annual 37 cps dividend dating back as far as the GFC. However, the recent announcement outlining initiatives aimed at increasing shareholder value will result in a large step up in the expected annual dividend. A brief overview of the initiative is likely to occur in two stages:
- Stage 1 – Demerge certain international investments into a separately listed holding company, consisting of CWN’s interest in Melco Crown, Alon development site in Las Vegas, 20% holding in Japanese restaurant brand Nobu, 50% holding in UK casino group Aspers and their investment in Caesars.
As part of stage 1, CWN will target a dividend payout policy of 100% of the normalised net profit after tax of the remaining businesses, lifting the annual dividend to an estimated 57 cps in FY17.
- Stage 2 – Float a 49% interest in a property trust owning CWN’s Australian hotels.
In the event of both stages being implemented, the remaining businesses will consist of some of the best casino assets in the world, owning two legislated monopolies in Melbourne and Perth, and exclusive VIP gaming licences for Crown Sydney once it opens in the early parts of the next decade. This business is ideally positioned to capitalise on the growing thematic of inbound tourism growing strongly over the medium term.
In terms of dividends, current estimates are for 57cps in FY17 resulting in a 4.4% partially franked (previously 50%) yield. Further to this, if purchased prior to the company trading ex-dividend, the dividends to be collected over a 14 month period would be ~83cps resulting in a yield of 6.4%.
In our view, CWN ticks all the boxes in terms of a business that is exposed to a growing industry, trades below our intrinsic value of ~$14.00 and offers an attractive yield. Further to this, the recent announcement of the shareholder value initiative is a catalyst to see the share price re-rate closer to our assessed intrinsic value.
Stephen Wood is a senior analyst at Clime Investment Management.
Clime Investment Management holds shares in CWN.
Originally published in The Australian, Tuesday 9th August