ASX code: RCT
Share price: $3.55
Industry: Entertainment and leisure
Forecast FY2016 Dividend: 36c fully franked
Before the downturn in the Asian gambling capital of Macau, integrated resorts and casinos operator Crown Resorts traded at a premium due to the high-certainty earnings flowing from monopoly positions in Melbourne and Perth. Reef ­Casino Trust, though much smaller and lesser known, has similar characteristics and is currently trading at an attractive forward yield of 10 per cent.
RCT’s main asset is the Reef casino complex in central Cairns, which includes electronic and table gaming facilities and high-end Pullman-branded hotel and Tamarind restaurant. Nearly 90 per cent of income comes from casino operations with the remainder from the hotel segment. RCT’s offering is largely calibrated to growing numbers of visitors from China, which is by far Australia’s most valuable tourism segment by country of origin. In 2015, the number of Chinese tourists increased by 20 per cent while expenditure increased by 45 per cent to more than $8 billion.
As a casino and tourism provider, RCT’s performance is tied to discretionary consumer spending and economic conditions, as well as the Australian dollar. Revenues typically exceed $22 million, though the year to June 2010 was a bad year with revenues falling to $18m in the GFC aftermath.
Earlier this year RCT reported record FY15 revenues of $25m, up 10 per cent, boosted by dollar depreciation and strong trading through the Chinese New Year period. This trend is expected to continue.
Over the past five years, RCT’s debt repayments totalled $14.9m and the trust now has net cash of $2.6m.
RCT’s high earnings certainty and growing distributions are products of its monopoly position in Cairns, so the key risk is a new player disrupting its comfortable market position. This is contingent on the state government granting a casino ­licence. Aquis (AQS), controlled by the Hong Kong-based Fung family, is seeking approval to build a $8.5bn mega hotel complex 20km north of Cairns in Yorkeys Knob.
In 2014 Aquis failed in its bid to acquire RCT, and last month withdrew its previous requirement for a casino to be included in the Yorkeys Knob development. The Queensland government is now accepting proposals for a casino licence in Queensland more broadly, and the outcomes of this process are uncertain.
Written by Jonathan Wilson, Equities Analyst