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Crown Update

Crown reported a normalised EBITDA of $855 million (up 3.7% on 2015) in a year which produced a significant amount of volatility. Proceeds from the partial sale of their stake in Melco Crown Entertainment Limited (MCE) joint venture made the result look better than it really was but revenue and margins from the Australian Resorts segment (Casinos) were broadly in line with market expectations.

 

Net debt improved substantially in the second half (down $509m or 22%) following the settled share repurchase agreement with Crown Asia Investments Pty. Ltd. (a subsidiary of Crown Resorts Limited (CWN). The cash proceeds (~$1 billion) were partially used (~50%) to pay down existing debt (bank facilities and US Private Placement) but has the sell down also alleviated technical pressure on credit metrics due to the equity accounted nature of MCE. This has helped alleviate any short term pressure but Crown Sydney is arguably behind schedule (and legal costs are rising) putting additional pressure on the project development pipeline

 

As a result, our thesis of a more sustainable balance sheet remains intact but remain cautious on how Crown will fund its extensive development pipeline while maintaining its commitment to shareholder dividends and an investment grade credit rating.

 

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