Crown’s possible takeover of Echo Entertainment has brokers pretty unenthused. Deutsche has a buy on the stock, and a price target of $11.10. Deutsche is arguing that the fundamentals look alright, irrepsective of the takeover speculation. Deutsche reasons Crown won’t get a board seat unless it moves beyond 10%, and it won’t get beyond 10% without regulatory approval:
Crown share price can continue to bridge the valuation gap (DB $11.10/share) as the market appreciates that a full takeover bid is not imminent and there are opportunities in combining the operations of Crown and at least part of Echo Entertainment. We believe the strategy will be to increase the shareholding to 20%, creep until Crown can exert some influence, meanwhile continuing to pursue the Barangaroo casino/hotel project.
Merrill is arguing that both casinos are doing well because of strong VIP activity. Merrill is bullish on casinos, pointing to the robust performance and strong execution on domestic capex programs. It is also bullish on lotteries and slot machines, less so on wagering:
Crown: H1 results were solid driven by: (1) strong VIP growth; (2) +5.5% main floor gaming growth; & (3) significant contribution from MPEL. However the announcement that CWN has increased its stake in EGP to 10% is now the focus point. Echo Entertainment: New VIP products drove robust top line growth offsetting some margin pressure. We are looking for a relatively stronger 2H12 given the full six months operation of the additional gaming supply and new F&B outlets. Star delivery continues to remain the focus.
Winner take all or high net worth gambling seem to be the order of the day.