James Packer’s Crown Resorts spin-off plan wins analyst approval

Packer’s move to split his gaming empire could unlock hidden value and allow more focus on local assets.

Billionaire James Packer, co-chairman of Melco Crown Entertainment Ltd., attends a news conference at Melco's Studio City casino resort in Macau. Photographer: Justin Chin/Bloomberg

Shares in James Packer’s Crown Resorts have rallied as much as 14 per cent on opening as analysts have broadly welcomed the move by the casino operator to spin off its international operations and pursue a float of most its Australian property assets as a means of unlocking value.

The international assets to be demerged in addition to Melco will be Crown’s investment in the Alon development site in Las Vegas, its 20 per cent holding in restaurant chain Nobu, its 50 per cent holding in British gaming group Aspers and its investment in US gaming group

Caesars.

Overseas, Crown will continue to own and operate the Crown Aspinalls casino in London.

Crown will also explore a potential IPO of a 49 per cent interest in a property trust that would own Crown Resorts’ Australian hotels, excluding Crown Towers Melbourne, with Crown Resorts retaining a 51 per cent interest.

Crown shares opened at much as 14 per cent higher, but have pulled back slightly. At 1030 AEST they were trading up 12.6 per cent $12.68 each.

Earlier today Crown chairman Rob Rankin told analysts on a conference call that the current valuation doesn’t reflect the quality of the company’s assets. He said there had been a “material undervaluation” in Crown’s shares.

No final decision has been made on the IPO, but the company now plans to progress approvals with state government and gaming industry regulators to give the Crown board the option of pushing ahead with the plan.

Goldman Sachs said Crown’s share price, which closed yesterday at $11.34, had not reflected the underlying value of the assets for some time.

“In particular the implied discount of its stake in Melco Crown has formed a key part of our buy thesis. We believe this action by the board has the potential to unlock some of this hidden value, with greater transparency and tradability of both domestic and international assets,” it said.

Crown will also increase its dividend payout ratio to 100 per cent of normalised profits.

“The revised dividend policy will also substantially increase the stocks yield (from 3.5 per cent to 5.2 per cent in financial 2017, paid out of the remaining assets), which should support its valuation. Overall, we expect these board initiatives could prompt the stock to trade closer to our (unchanged) sum of the parts valuation of $14.60.”

Citi viewed the proposals as a positive for shareholders. It cited business simplification and greater focus on the domestic assets, the potential to significantly free up the balance sheet and

reduce gearing, and higher dividends. Crown also revealed that Mr Packer, its 53 per cent shareholder, would not draw a salary as a Crown employee and that a new pay deal with Mr

Packer’s Consolidated Press Holdings would be worth a maximum of $8 million per annum.

“The new services agreement with CPH is a better outcome than what we had been assuming,” it said.