Goldman Sachs is thumping the table for Crown Resorts ( CWN.AU), reiterating its buy recommendation and highlighting the potential for AUD2.15 billion of capital management.
The broker says the Australian casino operator is only 40% through its strategic transition, with the sale of non-core international assets and a focus on its Australian business set to provide the flexibility for capital management and make its valuation look more attractive against other listed casino stocks.
Goldman calculates Crown could make AUD1.3 billion from the sale of its shares in Melco Resorts and Entertainment ( MLCO) and AUD373 million from the sale of a Las Vegas land parcel. Add in the remaining AUD470 million of a share buyback and that opens up the possibility of AUD2.15 billion of capital management.
Goldman reckons Crown could direct those funds to buybacks, special dividends or restructuring its high cost debt.
But it's impact on valuations from the restructuring that looks most interesting. Here's Goldman:
The change in strategy has implications for the company's headline EV/EBITDA and PE multiples during the transition. Crown appears the most expensive versus its peers Star and SKYCITY, however, if we were to adjust for further potential asset sales we estimate it would be trading at around 5%-13% discount on FY18-19E PE and 9%-19% discount on EV/EBITDA. We believe this discount is unjustified considering Crown Melbourne and Perth properties are both ex-capex while Brisbane (Star) and Adelaide (SKYCITY) have major (and likely disruptive) capital programs ahead and Sydney's (Star) exclusive licence ends in 2019 with competition entering in 2021.
Goldman rates the stock a buy with a AUD15 a share price target. Crown Resorts was last trading around AUD12.18 a share. The stock is up 16% over the past year.
CWN Price at posting:
$12.18 Sentiment: Hold Disclosure: Held
