Crown crushes Echo

When it comes to Crown, whatever you do, don’t mention the word casino. In the modern era, like all its contemporaries, Crown runs “integrated resorts”.

Along with the name change this morning, the newly rebadged Crown Resorts unveiled a set of numbers that ran against the trend of this year’s reporting season; they were far better than anyone anticipated.

For more than year, Crown (CWN) has traded at a premium while its northern rival Echo (EGP) has traded at a significant discount.

That gap has widened ever since Crown was gonged by the NSW State Government to proceed  with plans to develop a new “integrated resort” at Barangaroo, closer to Sydney’s CBD and main tourist hub than Echo’s The Star.

From a strategic viewpoint, Crown has emerged as an organisation with a clear strategy and disciplined control of its operations while Echo bears all the hallmarks of a company desperately floundering as it seeks some kind of momentum.

Given the run on Crown shares in recent weeks, anything less than a stunning result would have been greeted by profit taking.  Instead the stock has galloped ahead after underlying earnings and the net profit easily beat consensus expectations.

Underlying earnings rose 14% to $473 million. Most analysts had pencilled in $458 million. It was a similar story with net profit.  The 23% drop, based largely on the loss taken on dumping its 10% stake in Echo, to $395 million was well ahead of the expected $385 million.

Echo, in contrast, this week dished up an 80% drop in statutory earnings and an underlying result that was below the bottom end of the range of expectations.

From an investment viewpoint, Crown’s result has ticked all the boxes. Costs have been contained, market share has lifted and it has the benefit of running established operations combined with growth prospects (see Cliona O'Dowd's Collected Wisdom).

Crown’s premier facilities in Melbourne and Perth both performed well, lifting high margin VIP patronage 13% and 5% respectively. Its Melco joint venture in Macau, which provides around 40% of value, also delivered good momentum.

Then there is the growth. Echo’s loss of its Sydney monopoly in 2020 was a major coup for Crown which now is contemplating muscling in on Echo’s Brisbane monopoly. It is also exploring options in other parts of Asia.

After the series of disasters in North America shortly after the financial crisis, Crown is emerging as one of the most successful casino – sorry, integrated resorts – operators in the region.