Five tips for Investors looking at Casino and Entertainment Stocks

Summary

• Eased restrictions from regulatory bodies have allowed casinos to gear up and re-open, with occupancy limit guidelines; strict physical distancing measures; and enhanced hygiene measures.
• Crown Resorts re-opens its casino, gaming floor, food, and beverage outlets effective 27 June, with strict hygiene measures and physical distancing rules in place.
• ALL has a strong balance sheet, as noted in interim results released last month, which could further support its growth strategies in the coming period.
• SKC is scheduled to re-open its gaming operations and other facilities on 29 June. It also notified on its equity plans to strengthen balance sheet and enhance liquidity in the business.

Coronavirus crisis has been a dramatic, radical, and sudden game-changer for casinos and entertainment industry.

Governments in various countries have given a green signal for casinos to re-open. However, services offered by casinos would not be the same post COVID-19 pandemic, as they used to be in previous times.

The virus has caused unprecedented uncertainty and has forced businesses to think outside the box to remain dynamic and operational.

Australian Government has eased restrictions and casinos are unveiling their plans to re-commence operations. Top management of various businesses are adopting numerous measures such as capacity limits, strict social distancing, and enhanced hygiene with frequent sanitisation, to run their show.

Amidst the crisis, online gaming has proved to be one of the best activities for people to fray boredom and unwind stress.

Let’s quickly go through five tips for investing in casino and entertainment stocks:

• Thorough research on a Company in terms of its history should be carried out; companies with longer history proves to be resilient to ups and downs and establishes their capabilities to withstand all kinds of situations arising ahead.
• To know the risks of investing that includes legal and political risk, and regulatory issues as the gaming industry is highly license driven.
• Being vigilant while making an investment in such stocks, especially during the current COVID-19 crisis period, as it is a challenge to maintain physical distancing in casinos; worsened situation might direct the re-opened businesses to shut their doors again.
• Casino industry is quite popular with investors because of their profit returns especially when the market is flourishing. As the economies have started opening again, people are likely to visit casinos and place bets.
• Careful investment is another key that investors should consider as investing in a volatile market which offers tremendous alternatives such as Virtual Reality, TikTok and online streaming apps.

Let's now dive deep into some of the ASX-listed Casino and Entertainment stocks discussing their recent updates:

Crown Resorts Limited (ASX:CWN)

CWN, one of the biggest entertainment groups in Australia on 23 June 2020 announced plans to re-commence its operations for casinos, gaming floor, food, and beverage outlets effective 27 June 2020.

In the wake of prevailing COVID-19 crisis, CWN has agreed with the Western Australian Government that its resort, Crown Perth would operate under temporary restrictions, which are as follows:

• Each venue will observe capacity limits, as the permission is granted for only one person (including staff) per two square metres;
• Physical distancing norms should be followed among the patrons present at electronic gaming machines and table games;
• Limited players at gaming tables, and
• Periodic cleaning to support the hygiene factor.

Ken Barton, Crown's CEO said that the Company’s prime concern is the health and safety of its customers, staff, and the community. The hygiene and physical distancing norms have been developed after consulting the Government, Chief Health Officer and Commissioner of Police. Crown Perth, CWN’s resort has been re-opened by adopting all safety measures. The Company is looking forward to welcoming its clients and employees back.

On 26 June 2020, CWN last traded at AU$9.580, up by 1.591% compared to its previous closing price.

Did you read; Gaming Players under Radar, Playing season knocking off with the new normal

Aristocrat Leisure Limited (ASX: ALL)

ALL is a leading provider and publisher of games, offering products and services such as electronic gaming machines, casino and electronic social games.

On 12 June, S&P Dow Jones indices introduced changes in the S&P/ASX indices; Aristocrat was to be added in S&P/ASX 20 index on 22 June 2020.

On 21 May 2020, ALL unveiled its six months results ended 31 March 2020 for FY’20 (H1 FY’20) and noted strengthened balance sheet, supporting its growth strategies. Following were the highlights with comparison on y-o-y basis:

• Group revenue witnessed a growth of 7% and amounted to AU$2.25 billion; Land-based revenue declined by 6%.
• EBITDA reported a decrease of ~8% to AU$708 million.
• Digital revenue and bookings surged by 19% (local currency) and digital profit increased by 12%.
• Operating cash flow grew by 42%, representing boosted cash-generating fundamentals.
• NPATA witnessed a decline of 12.8% primarily due to the effects of pandemic on the Land-based business.
• Liquidity further upgraded with dividend suspension to AU$1.8 billion
• Incremental Term Loan B amounted US$500 million, maturing in October 2024 was raised on 18 May 2020.

The growth in the digital revenue reflects Company’s diversified portfolio with the scaling of a world-class RPG game and release of two new casual games.

Furthermore, the Company highlighted that the land-based market is anticipated to re-open in a phased manner on a location by location basis.

On 26 June 2020, ALL settled the day’s trading session at AU$25.600, up by 1.146% from its last close.

SkyCity Entertainment Group Limited (ASX:SKC)

Gaming entertainment player, SkyCity Entertainment on 26 June 2020 announced its plans to re-open its gaming operations, entertainment and hospitality facilities in Adelaide starting 29 June 2020.

This re-opening is a part of a 3-stage approach followed in South Australia to re-open the economy and ease restrictions. Some of the re-opening plan includes of the following:

• Initially, casino access would be limited to active members,
• Capacity would depend on highest patronage of one person/two square metres at one point of time,
• Strict physical distancing measures would be adhered, and
• Infrastructure has been established to aid in contact tracing, especially through surveillance, guest registers, identity scanning and loyalty cards.

Further, SKC announced a fully underwritten institutional placements worth NZ$180 million was settled on NZX as well as ASX on 24 June 2020; followed by allotment and commencement of trading of new shares.

As a constituent of equity raised, the Company’s share purchase plan of NZ$50 million, opened on 22 June 2020 and the offer would close on 3 July 2020.

This equity plan was announced by SKC on 17 June 2020, to fortify its balance sheet and secure further liquidity due to uncertainty caused by COVID-19.

Also, read, Skycity Unveils Its Funding Plan and Equity Raising

On 26 June 2020, SKC closed flat at AU$2.430.

Tabcorp Holdings Limited (ASX:TAH)

TAH is a gambling and entertainment entity that works through several business brands such as Keno, TAB, MAX, Sky Racing and the Lott.

On 29 June 2020, TAH notified the market that it has inked a binding term sheet with Jumbo Interactive Limited (ASX:JIN) for the amendment and extension of already existing commercial reseller deals.

A few characteristics for TAH of the latest binding terms are as following:

• Resale of TAH lottery products (Victoria, NSW, South Australia, Northern Territory, Australian Capital Territory) agreement with JIN for a decade or ~July 2030.
• AU$ 15 million of fixed extension fee to be paid by JIN to TAH, on its beginning.
• 65 percent service to be paid by JIN to TAH (ticket subscription price), phasing in at 1.50 percent in financial year 2021; 2.50 percent in financial year 2022, 3.50% in financial year 2023 and 4.65 percent subsequently.
• Long form deals are supposed to be entered within sixty days from 28 June this year or, the term of the reseller deals would be cut short from a decade to term with expiration date as 1 May 2023 along with partial refund of AU13.5 million of the upfront extension fee and a partly abridged service fee.
• The binding terms consist of termination rights (customary) for distribution deals of this kind allowing TAH to end each of the reseller arrangements on thirty days’ notice period if JIN is not able to execute its commitments, move into identical deal with any third party, etc.

On 26 June 2020, Tabcorp appointed Patrick McGlinchey, Group General Counsel, as its additional Company Secretary. While Chris Murphy remains the Company Secretary.

Subsequent to its 19 May notification, the Company further updated market players on 4 June 2020, on its response to COVID-19 effects with regards to agreements with its financiers.

TAH attained an agreement with its US Private Placement note holders, apart from other factors, for the waiver of interest cover covenants, along with adjustments to leverage covenant ratios related to the next two testing dates, i.e. 30 June 2020 and 31 December 2020.

Source: Company’s announcement

Also, read; What’s the latest with these stocks - OFX, IPL, TAH, COF, GOZ and DCG?

Further, On 19 May 2020, TAH gained an agreement from its bank lenders under its Syndicated Facility Agreement (SFA) (which represented facilities of AU$2.2 billion) for a waiver of leverage and interest cover covenants related to testing dates as mentioned above. TAH has refrained from paying out the final dividend for FY20, as a part of securing the waivers under the SFA.

On 26 June 2020, TAH last traded at AU$3.310, up by 0.608% versus the last close.