Echo plan a value loser: analysts
A cunning plan by the Echo Entertainment Group to have the NSW government give the green light to its billion-dollar casino development as well as a rival casino by James Packer's Crown at nearby Barangaroo could be strategically smart but a value loser, analysts have warned.
Please check the following:
- {{x.value}}
FREE membership
FREE membership
Join InvestSMART today
{{ twilioFailed ? 'SMS Code Failed to Send…' : 'Enter verification code' }}
Please enter the 5 digit verification code sent to "{{user.DayPhone}}" Change number
We cannot send you a verification code via SMS to "{{user.DayPhone}}" Change number
{{ completedStep1 ? 'Authentication & Security' : content.trialHeading.replace('{0}', user.FirstName) }}
Please enter your mobile number and press send to receive a text message with a verification code.
{{ content.upgradeHeading.replace('{0}', user.FirstName) }}
The email address you entered is registered with InvestSMART
Please login to continue
Thank you
We have sent you an email with the details of your registration.
Purchase order
Sign up
Log in
Looks you are already a member. Please enter your password to proceed
{{ upgradeCTAText }}
Updating information
Please wait ...
Your membership to InvestSMART Group recently failed to renew.
Please make sure your payment details are up to date to continue your membership.
Having trouble renewing?
Please contact Member Services on support@investsmart.com.au or 1300 880 160
You've recently updated your payment details.
It may take a few minutes to update your subscription details, during this time you will not be able to view locked content.
If you are still having trouble viewing content after 10 minutes, try logging out of your account and logging back in.
Still having trouble viewing content?
Please contact Member Services on support@investsmart.com.au or 1300 880 160
Please click on the ACTIVATE button to activate your Intelligent Investor 15-day free trial
Please click on the ACTIVATE button to finalise your membership
Log in
Upgrade Today
Unsuccessful registration
Registration for this event is available only to Eureka Report members. View our membership page for more information.
Registration for this event is available only to Intelligent Investor members. View our membership page for more information.
{{eventFunction.Name}}
{{eventFunction.EventTypeName}}
{{eventFunction.StartDate}}
{{eventFunction.EventTimings}}
{{eventFunction.VenueName}}
{{ t.Cost === 0 ? "FREE" : "$" + t.Cost.toFixed(2) }}
Quantity *
- You are already registered for this event.
- This event is already full.
- Please select a quantity for at least one ticket.
- {{ i }}
Forgotten password
Please enter your email address below to request a new password
Check your inbox
- Verify your email address by clicking on the link we sent to {{user.Email}}
- You now have free access, we look forward to helping you on your financial journey.
A cunning plan by the Echo Entertainment Group to have the NSW government give the green light to its billion-dollar casino development as well as a rival casino by James Packer's Crown at nearby Barangaroo could be strategically smart but a value loser, analysts have warned.
Echo, which owns the Star, this week unveiled its defence against losing its gambling monopoly to an encroachment by Mr Packer, dangling before the state government the idea of allowing both casino developments to go ahead.
But this "third way" proposal by Echo would still deliver a second casino into the Sydney marketplace - albeit with some restrictions on Crown's table games and access to VIPs - further squeezing the sector.
Analysts have also questioned the economics of Echo's main proposal put to a state panel, by which it would retain its casino exclusivity licence in NSW by investing $1.1 billion to develop a hotel, restaurants and entertainment precinct and public infrastructure. The bid would come with an extra kick of $250 million paid to the state government to extend its monopoly exclusivity for 15 years and block Mr Packer from developing his own casino at Barangaroo.
"An exclusivity payment effectively lowers the valuation upside to the company if their proposal wins by 30¢ per share," said Citi analyst Michael Goltsman.
Bank of America analyst Mark Bryan said: "While Echo's proposal appears impressive and a competitive alternative to Crown's Barangaroo, returns could be challenged.
"While we do believe that the hotel roll-out has strategic merit in the underpenetrated Sydney market, we see scope for higher returns to be challenged ... Star would need to more than double its VIP business to keep the project return on invested capital (ROIC) accretive.
"We estimate around 250 per cent growth in 2018-19 VIP revenue is needed to drive a ROIC of 10.3 per cent."
Deutsche Bank analyst Mark Wilson said Echo's approach was "strategically astute but ultimately low returning".
"The proposal allows the NSW government to approve the projects of both Echo and Crown with a combined budget of $2.3-2.6 billion and it will ensure increased development and connectivity.
"Additional concessions are required to ensure an appropriate return is generated and they could encompass a lower gaming tax and other regulatory changes as there is no cap on the number of table and electronic table games."
Shares in Echo closed up 3¢ at $3.02, Crown ended down 34¢ at $11.50.
Echo, which owns the Star, this week unveiled its defence against losing its gambling monopoly to an encroachment by Mr Packer, dangling before the state government the idea of allowing both casino developments to go ahead.
But this "third way" proposal by Echo would still deliver a second casino into the Sydney marketplace - albeit with some restrictions on Crown's table games and access to VIPs - further squeezing the sector.
Analysts have also questioned the economics of Echo's main proposal put to a state panel, by which it would retain its casino exclusivity licence in NSW by investing $1.1 billion to develop a hotel, restaurants and entertainment precinct and public infrastructure. The bid would come with an extra kick of $250 million paid to the state government to extend its monopoly exclusivity for 15 years and block Mr Packer from developing his own casino at Barangaroo.
"An exclusivity payment effectively lowers the valuation upside to the company if their proposal wins by 30¢ per share," said Citi analyst Michael Goltsman.
Bank of America analyst Mark Bryan said: "While Echo's proposal appears impressive and a competitive alternative to Crown's Barangaroo, returns could be challenged.
"While we do believe that the hotel roll-out has strategic merit in the underpenetrated Sydney market, we see scope for higher returns to be challenged ... Star would need to more than double its VIP business to keep the project return on invested capital (ROIC) accretive.
"We estimate around 250 per cent growth in 2018-19 VIP revenue is needed to drive a ROIC of 10.3 per cent."
Deutsche Bank analyst Mark Wilson said Echo's approach was "strategically astute but ultimately low returning".
"The proposal allows the NSW government to approve the projects of both Echo and Crown with a combined budget of $2.3-2.6 billion and it will ensure increased development and connectivity.
"Additional concessions are required to ensure an appropriate return is generated and they could encompass a lower gaming tax and other regulatory changes as there is no cap on the number of table and electronic table games."
Shares in Echo closed up 3¢ at $3.02, Crown ended down 34¢ at $11.50.
Share this article and show your support
Call 1300 880 160
Start a chat
Schedule a call
