Echo Entertainment downgraded
Recommendation
Echo Entertainment is now one of four remaining companies vying for the redevelopment of Queen’s Wharf in Brisbane after New Zealand-based SkyCity Entertainment and Lend Lease were knocked out of the running. Echo is reportedly trying to partner with either of the two remaining overseas entrants, which includes Chinese giant Greenland and a syndicate including Far East Consortium and Chow Tai Fook Enterprises.
This makes sense, as the Queensland government wants a casino to be part of a broader development that will attract Asian tourists and Echo’s finances are stretched from the redevelopment of The Star casino in Sydney and refurbishment plans for its other three Queensland casinos. Crown Resorts remains a formidable fourth bidder, however, as it has experience developing casinos in the Asian gambling mecca of Macau.
It’s impossible to predict what Echo will look like in 10 years’ time. It may look similar to how it does today; it may be the proud part owner of a new casino license in Brisbane or perhaps it will sell one or more of its current suite of casino licenses in Queensland or New South Wales. Either way we think the business will at least be worth what it is today and hopefully more if it can turn around The Star’s performance.
With the share price increasing 18% since Echo: Interim result 2014 (Buy – $2.38) we’re downgrading to HOLD.
Note: Our model Growth Portfolio owns shares in Echo Entertainment.