Markets: Crown's so-so Sydney win

Citigroup’s Michael Goltsman argues Crown Sydney’s returns will be modest, with the stock to rise less than 10 per cent over the next year.

The fortunes of Sydney’s two casino companies are going in opposite directions. Crown shares have gained as much as 6.1 per cent today. Echo Entertainment’s stock is down as much as 5.5 per cent after its rival snared the right from the New South Wales government to build a hotel and casino that caters to the wealthy.

At 1305 AEST Crown shares were up 41 cents, or 3.4 per cent, to $12.62, after earlier rising as much as $12.95. Echo’s stock has fallen 12 cents, or 4.1 per cent, to $2.79, after sliding to $2.75.

Citigroup’s Michael Goltsman has lowered his 12-month forecast for Echo’s shares to $3.10 from $3.30. He forecasts Crown’s stock will rise to $13.80. But Crown, says Goltsman, needs to make sure it gets a return on capital of 15 per cent, pre tax, from the company’s $1 billion complex on Sydney’s waterfront, just around the corner from the famed Harbour Bridge. 

“We expect returns from Crown Sydney will be modest and factor no value creation for Crown,” says Goltsman. “Our buy rating continues to reflect Crown’s exposure to Macau.”

Crown expects the international wealthy gambling market in Australia to more than double by 2022 to $2.5 billion. It expects to capture 24 per cent of that or $600 million of the gambling of the predominant wealthy Asian tourist. Still, local patronage is important to Crown. Goltsman says wealthy Australians gambling may represent about half of Crown’s cashflow in Sydney. 

This will impact on Echo’s Star casino just across the water in Pyrmont. Echo will have a $50 million annual earnings hit once Crown’s Barangaroo site opens for business, according to Goltsman. He expects Echo to extend its Star gambling complex in an effort to compete with Crown, albeit more modestly than that proposed to the NSW government.

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