Analysts downgrade Crown Resorts after casino inquiry report

Crown Resorts has been hit with downgrades by analysts following a NSW inquiry finding it is unsuitable to operate its flagship Sydney casino.

Crown’s new Barangaroo resort in Sydney. Picture: Jeremy Piper

Crown Resorts has been hit with downgrades by analysts following a NSW inquiry finding it is unsuitable to operate its flagship Sydney casino, raising questions of heightened regulatory action by other state governments.

Last November Fitch Ratings placed Crown’s BBB long-term issuer default rating on negative watch as revelations of the inquiry regarding money-laundering and Crown’s links to organised crime made it likely regulators in Victoria and WA would be forced to place the company under further scrutiny.

Fitch primary rating analyst Kelly Amato told The Australian further action now looked certain.

“I think there will be more to come out of this in both of those jurisdictions,” she said.

“We already saw last year on the back of this inquiry was that Victoria brought forward their review of Crown by a couple of years and issued a show-cause notice.”

“The Western Australian regulator has said it will wait for the release of this report and given the nature of the report we think is likely it will create more scrutiny over Crown.”

Ms Amato also said Crown’s path to suitability “was not just a checklist” and would require more regulatory oversight.

“I think the report does show a pathway, but the thing that the regulators will be looking at as Crown does go through and remediate itself will be more overarching for it to get back to that suitability rather than just addressing the key points in the report.”

Gaming industry analysts agreed the report flagged heightened regulatory action in other states, with some tipping Crown could become subject to M&A activity.

Analysts at Macquarie said the report “brings into question Crown Resorts’ suitability for Crown Melbourne and Crown Perth” and downgraded their company rating to neutral.

Their underlying earnings forecast for Crown was flat for the 2022 financial year, shrinking by 3 per cent in the 2023 financial year.

Goldman Sachs analysts said the report would likely delay the opening of Crown Sydney’s gaming floor.

They added the Bergin report reaffirmed their belief that Crown was the least attractive listed casino operator on the ASX and said Crown was “facing heightened M&A probability”.

Analysts at UBS maintained a buy rating on Crown, taking a bullish view towards the company’s ability to achieve suitability.

“In our view these conditions could be achieved after undergoing significant changes to the organisation and we would expect Crown to pursue these changes as a priority,” they said.

Evans and Partners analyst Sacha Krien maintained a positive rating on Crown, saying the company could merge with its competitor, Star Entertainment.

“We also maintain our view that a merger of Star and Crown is a reasonable possibility given synergies valued at $1.4bn,” Mr Krien said, adding that a merger would also allow James Packer to dilute his shareholding below a proposed 10 per cent limit on all holdings in casino operators recommended in the report.