...der informiert wirklich gut. Da kommen alle 2 bis 3 Tage Mails mit Infos. :-)
Greets Tobi
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Talk about the financial media focusing on gaming stocks!! SSI/GCN (XSS/GCK in Germany) are the only 2 listed major players in mainland Chinese gaming, still missed by the wider market. Next to come will be Tattersall's on 2 June, the oldest and biggest lotto company in Australia to be listed. IPO cap value $2bil.
Market misses the main game at PBL
Author: Alan Jury
Date: 27/05/2005
Words: 1744
Source: AFR
Publication: The Financial Review
Section: Corporate Focus
Page: 74
For a company in the media index, PBL has a lot going on in the gaming space, writes Alan Jury.
Kerry Packer's Publishing & Broadcasting Ltd is suffering a case of mistaken identity that might be costing its shareholders as much as $2.4 billion.
Rapid expansion of its gaming operations over the past year means PBL is now a fully fledged diversified gaming, media and entertainment company one that has market-leading positions and strong cash flows in each of its core businesses.
Yet this is not recognised in PBL's classification in the S&P/ASX stock indices, nor is it recognised by stockbrokers, who continue to assign primary research responsibility to media specialists even though the latter are increasingly recognising gaming as the generator of PBL's future profit growth.
"Our positive view on PBL is predicated not on the expected improvements in the TV area but on the growing earnings from gaming and the associates (including the Melco Asian gaming joint venture) providing a diversified income stream in a softer ad environment," says Morgan Stanley.
Nola Hodgson of UBS adds: "It appears increasingly obvious that gaming is the key plank in PBL's growth strategy, with future opportunities likely to emerge in Asia as well as in Europe."
Nevertheless, PBL is still being priced as a media stock with some interesting growth options in gaming and entertainment. As such, it suffers from not attracting the higher valuations investors appear to give gaming companies compared with broadcasters and publishers.
PBL's shares, according to Bloomberg, are trading at 19 times consensus forecast 2005 earnings per share, while those of rival gaming, media and entertainment company Tabcorp Holdings are trading on a price-earnings multiple of 23.4.
US-listed casino operators such as Harrah's, MGM Mirage, Kerzner International and Las Vegas Sands are on P/Es of 19, 23, 21.6 and 34.4, respectively. PBL's Asian gaming joint-venture partner, Melco International, commands a P/E of 24.
Simply pricing PBL on a similar multiple to Tabcorp would give PBL shareholders an extra $3.50 a share today, or $2.4 billion in aggregate.
Interestingly, it appears as if this valuation issue was indirectly raised by PBL executive chairman James Packer at an analysts' briefing in February.
Packer, according to a note published by Macquarie analyst Alex Pollak, valued PBL's assets then at $13.4 billion, some $1.2 billion higher than Pollak did. Pollak ascribed 11 per cent more value to the TV and magazines businesses than Packer and was 30 per cent under the PBL chief's valuation of the gaming interests.
Valuations are subjective and Pollak's views were not out of line with his peers. More significant is the difference in perception between Packer and the analysts that cover his company.
This confusion about PBL's identity is partly an accident of history, with stock exchange index constructor Standard & Poor's yet to recognise the company's changing dynamic. PBL remains officially categorised as a media stock.
Media as a sector has slipped from making up 9.4 per cent of the S&P/ASX 200 index 18 months ago to constituting just 4.9 per cent at the end of April. This decline is directly attributable to the staged withdrawal of News Corp from the local index.
By the time the process of exorcising News is complete, media's representation in the S&P/ASX 200 is likely to be less than 2 per cent.
In fact, it will be smaller than the hotels, restaurants and leisure index in which Tabcorp is housed.
Further complicating the issue for S&P is the fact that PBL accounts for one-third of the non-News Corp media space, while the next biggest stock, John Fairfax, makes up one-fifth. Transferring PBL to another index would further erode media as a standalone index category.
Perhaps S&P's index constructors could take a leaf out of the book of their credit rating colleagues and merge media and gaming to create a media and entertainment index.
To do this, however, would be to abandon the global industry classification standard (GICS) on which both S&P and its major rival, MSCI, base all their indices. The primary criterion for GICS is revenue, and an S&P spokesperson told The Australian Financial Review PBL would need to get more than 50 per cent of its revenue from gaming before a change would be considered.
Gaming in 2004, then just Melbourne'sCrown Casino, provided 42 per cent of PBL's revenue 40 per cent more than TV and 63 per cent more than magazines but the combined TV and publishing revenue is enough to keep PBL in the media index bin.
More significant for investors, however, is that gaming is PBL's largest single business unit. It contributed 44 per cent of PBL's earnings before interest, tax, depreciation and amortisation last year. By comparison, television generated 33 per cent of 2004 EBITDA and magazine publishing 25 per cent.
Global institutions, which led the way in re-rating poker machine manufacturer Aristocrat Leisure last year, are inhibited in their ability to do likewise with PBL by restrictions on foreign ownership of media licensees.
While the law specifically relates to the licensee, in practice the holding company, PBL, has to incorporate a corresponding prohibition into its constitution to ensure compliance. To free up its other businesses to foreign investment, PBL would need either to spin them off into discrete vehicles or do the same with the TV licensee.
PBL's gaming business has been expanded significantly this financial year. It acquired Perth's Burswood Casino and entered into a joint venture with Hong Kong-listed Melco International covering the acquisition and development of casino and gaming interests in Asia.
PBL-Melco now owns Mocha Slots, a chain of poker machine lounges, and is developing the Park Hyatt and City of Dreams hotel and casino projects, all in Macau. It is also tendering for an integrated resort and casino in Singapore.
City of Dreams, which will have a footprint some 30 per cent larger than the Crown Complex in Melbourne and will cost more than $US1 billion ($1.31 billion) to develop, is a good illustration of the financial attraction of gaming. An iconic project incorporating the world's first underwater gaming hall, it will be PBL's second casino in Macau and it may not be its last.
According to Melco chief executive Lawrence Ho, City of Dreams will have a 11/2 year payback. Neither partner is expected to have to contribute much, if anything, directly to the development cost. The total $US214 million cost of the lease will be funded by debt and existing equity in the joint venture, while initial development costs will be funded by pre-selling some of the proposed serviced apartments. The casino is likely to be the first component built and its cash flow is expected to fund the rest of the development.
By 2010, when both the Park Hyatt and City of Dreams casinos will be in full swing, PBL's gaming businesses could be contributing about half of group EBITDA.
Goldman Sachs JB Were was one of the first to acknowledge that traditional perceptions of PBL and its revenue and profit drivers were no longer relevant.
"PBL's dependence on the advertising cycle for its core earnings and cash flow has diminished from around three-quarters in the late 1990s to a little over one-third currently," it said in April.
"The acquisition of Crown Casino in 2000 and Burswood in 2005 means that around 50 per cent of PBL's revenue is now driven by consumer spending (local gaming, magazines circulation and event ticket sales) and a further 10 per cent comes from international VIP customers."
More recently, the call was taken up by Merrill Lynch. "PBL's reliance on ad revenues continues to diminish, with its outlook becoming much more weighted towards gaming earnings," says Merrill's Patrick Russell, who also says the two Macau casinos add an extra $2.50 a share, or 15 per cent, to his present $16.35 a share valuation. Further option value exists if the Melco joint venture is able to obtain additional gaming licences in countries such as Thailand."
PBL's deal with Melco gives it 40 per cent of any gaming interests they acquire in China and 60 per cent of any elsewhere in Asia. This will include Singapore if the present application is successful.
However, this doesn't do full justice to PBL's gaming interests. For a start, most of the analysts have assumed the rapid development of casinos in Macau will lead to less business per casino and have compiled their forecasts accordingly. However, a look at gaming revenue trends in the US over the past 15 years shows that the growth of casinos has been accompanied by a concurrent surge in gaming revenue.
American Gaming Association statistics show commercial casino revenue has been compounding by 9.3 per cent a year since 1993 1.7 per cent a year more than the rise in total US gaming revenue. Casinos as a proportion of total gaming revenue have risen to 37 per cent from 32 per cent.
Moreover, PBL has other potential gaming interests that are not captured by earnings-based valuations. Its joint venture with Betfair may shortly crystallise.
Betfair is a UK-licensed betting exchange that won a Queen's Award for Enterprise in 2003. It operates as an internet peer-to-peer model similar to eBay (online auctions) and Napster (music file swapping), explains CCZ's Tony Waters.
Instead of betting fixed odds with a bookie or placing a bet with a TAB where the final price isn't known until the event has started, Betfair allows punters to play both sides of the market and nominate their own odds. Betfair then matches bets between people with opposing views. PBL negotiated a 50:50 joint venture with Betfair in July 2004 to develop the business in Australia and New Zealand.
Merrill Lynch gaming analyst Paul Facey recently cited feedback from the gambling industry as suggesting "a high probability" that Tasmania will license Betfair "within the next few weeks" and that the Northern Territory would follow suit.
Through major shareholder Consolidated Press Holdings, PBL also has access to the Aspinalls casino and betting business in the UK.
And through the PBL-Melco joint venture, it is investigating further opportunities throughout Asia, where authorities are licensing or considering new casinos in Singapore, Thailand, Cambodia, Vietnam, India, Myanmar, Korea, Hong Kong and Japan.
For a so-called media company, PBL sure has a lot going on in the gaming space.
LINKED JACKPOT
Expected development timetable for Asia's casinos
2002 Macau ends 40-year gaming monopoly, grants new concessions
May, July 2004 First two new casinos open in Macau
Feb 2005 Singapore calls for initial submissions on integrated resort/casino
Apr 2005 Singapore legalises casinos, proposes two
Dec 2005 Singapore awards casino licences
Jan 2006 Thai government announces legislation
Jun 2006 Singapore construction begins
2006-08 Major new casino openings in Macau
2006-10 Japan, Taiwan and India legalise casino gaming
2008-09 Major new casino openings in Thailand
Jan 2009 Singapore resorts and casinos open
PBL'S evolution towards gaming & entertainment
1933 ACP established
1956 Sydney TV licence acquired
1960 Nine Network established
1972 Newspaper business sold
1987 Nine Network sold
1990 Nine Network repurchased
1994 PBL established by merging ACP and Nine Network
1998 25pc of Foxtel acquired
1999 Crown acquired, ecorp floated
2003 ecorp privatised, 25pc of Seek bought
2004 Foxtel digital rolled out, Burswood acquired, Melco and Betfair joint ventures established
2005 50pc of Hoyts acquired, bids for Singapore casino licence, Seek floated, second Macau resort/casino project announced
Source: Merrill Lynch, PBL
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