CS sees potential share price drop at Crown Resorts

Crown Resorts shares will be worth around $7.50 each if it is forced to divest from its flagship Melbourne casino by a Victorian Royal Commission into the James Packer backed group, analysts at Credit Suisse say.

That would be a near 15 per cent decline from Crown’s current trading price, which has already been hammered by a recent recommendation from the commission’s lawyers that the company be found unsuitable to operate the Southbank complex.

Under this scenario, Crown 37 per cent shareholder James Packer would see the value of his stake in the company fall by around $400m to $1.8bn.

Taking a simplified approach to the casino’s valuation due to the regulatory complexity of such a scenario, the analysts valued Crown Melbourne’s components excluding goodwill at $1.715bn – or $2.53 per share – compared to a continuing business valuation of $3.75bn.

That’s because Crown Melbourne’s main casino building as well as some hotel and retail space is on Crown (government) land, meaning the company might not be able to sublet the complex out to the next operator of the property – a question currently being examined by the Victorian commission.

However, the analysts also consider it unlikely Crown will have its Victorian licence cancelled outright and believe the company will be deemed “temporarily unsuitable” with a path to redemption offered, similar to the decision made by the NSW Bergin Inquiry in relation to Crown’s Sydney casino.

“This is not to say whether Crown did or did not contravene the Casino Control Act. It
simply says there is a political rationale for allowing Crown to retain its licence,” the analysts said.

“The VIC state government may consider that there is no guarantee that a new casino licensee will be as engaged with the community as Crown – especially since under tighter regulations there will be reduced cash flow to support investment over the long term.”

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