Echo Entertainment: Result 2015
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When we downgraded Echo to Sell on 7 Nov 14 (Sell — $4.02), we said we might be selling too early because 'there may still be plenty of value to be realised' at The Star. Unfortunately for members who followed our recommendation, we've been proved right.
Key Points
The Star continues to shine
Further investment in The Star's VIP facilities
Construction of new Brisbane casino to start in 2017
Continued improvement at The Star was behind another decent result for Echo (see Table 1). Both VIPs (assisted by the Chinese corruption crackdown encouraging them to avoid Macau) and non-VIPs contributed, with the latter helped by improving economic conditions in New South Wales and the company's loyalty and marketing programmes.
Despite spending around $1bn redeveloping The Star in recent years, Echo will invest an additional $500m over the next five years, partly to make its VIP facilities even more attractive to wealthy gamblers before Crown's VIP-only Sydney casino opens in late 2020.
| Year to 30 Jun | 2015 | 2014 | /(–) (%) |
|---|---|---|---|
| Revenue ($m) | 2,331 | 1,933 | 21 |
| EBITDA ($m) | 521 | 419 | 24 |
| D&A ($m) | 164 | 146 | 12 |
| EBIT ($m) | 357 | 274 | 30 |
| NPAT ($m) | 217 | 129 | 68 |
| EPS (c) | 26.3 | 15.6 | 69 |
| DPS (c) | 11* | 8 | 38 |
| * 6 cents final dividend, fully franked, ex date 17 Aug | |||
| Note: all figures are normalised rather than actual except for DPS | |||
Echo's casinos in Brisbane and on the Gold Coast (Jupiters Townsville was sold on 1 Oct 14) also performed well.
An improved local economy (albeit less so than south of the border), loyalty programmes and benefits from the recent relaxation of pokie machine regulations (see Echo: Interim result 2015 for details) all contributed.
Echo will continue modernising Jupiters Gold Coast and, once its new hotel tower is completed in 2017, this property should be able to attract more VIP business than currently.
Construction of Echo's new Brisbane casino in the Queens Wharf precinct (see Echo turns tables on Crown in Brisbane) is due to start in early 2017 and take more than five years to complete.
Unlike Crown's casinos in Melbourne and Perth, however, Echo will face competition in both Sydney and the Gold Coast if the new casino proposed for the latter by ASF Consortium is built.
Echo's share price has risen 6% since Echo turns tables on Crown in Brisbane on 21 Jul 15 (Sell — $4.88) and, with the stock trading at 20 times the earnings just reported, it remains a SELL.
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