Crown Melbourne’s prospects examined by analysts

By William Brown Updated
Crown chair outlines flaws in Victorian royal commission findings

The biggest question to come out of the Victorian royal commission into Crown Resorts Melbourne is whether or not the casino operator will have its licence stripped.

The Australian Financial Review reports that investors and analysts think the casino giant is likely to escape with a much lesser punishment than full revocation of its licence.

They argue it is more likely that royal commissioner Ray Finkelstein, QC, will not go as far as revoking the licence and will instead find Crown “unfit” to operate the Melbourne casino, but pave a pathway to suitability with a strict reform program under the scrutiny of a monitor or newly formed casino regulator.

But the uncertainty surrounding the casino giant, which will not know its fate until commissioner Finkelstein hands down his findings in October, further casts doubt on two potential bidders for the company.

Crown shares fallen since royal commission started in Melbourne 

Rival casino group The Star and US private equity giant Blackstone are likely to take time to consider the value proposition of the James Packer backed company, which could still be stripped of the licence or have the Melbourne casino spun off out of the Crown group altogether.

“I think the share price tells you what people are thinking,” and one investor who wanted to remain anonymous.

“It’s fallen 20 per cent since the royal commission was announced. Investors are worried they’re going to lose their licence in Victoria.”

JP Morgan analyst Don Carducci said he expected counsel assisting the royal commission to declare that Crown was unfit to hold the licence, but thought Crown would ultimately retain it after undergoing deep reform.

“We could understand increased operational oversight of Crown with a reform program and increased monitoring during that transition period,” Mr Carducci said.

Goldman Sachs analyst Desmond Taso flagged that there continued to be a potential merger and acquisition premium attached to Crown.

He has warned investors that the risks to Crown investors are substantial.

Fitch ratings analyst Kelly Amato said Crown’s overhaul was crucial if it wanted to retain its licence.

Crown shares dipped 1.72 per cent to $10.28 on July 21 and are down 21.8 per cent since mid-May when the Victorian royal commission hearings began.

Path to reform likely for Crown

One investor, who spoke on the condition of anonymity, said it did not make sense to strip Crown of its licence because the casino giant was more than capable of reform within two years.

This directly contradicted counsel assisting the royal commission Adrian Finanzio, SC, who in his final submission to the Victorian inquiry, slammed Crown for “grave, systemic breaches of the law” and warned any path to reform would take at least two years.

The investor pointed to the banks, arguing “they have cleaned up their act” after the banking royal commission, while retaining their licences and even became part of “Team Australia” during the COVID-19 pandemic.

“The narrative about ‘you cannot change’ isn’t right. And so is a timeline of two years. Why would you put a timeline on that? And how can you determine it? Did anyone put a timeline on Commonwealth Bank of Australia when they had their issues?”

During his recent closing remarks, Mr Finanzio said Crown Melbourne was not a suitable licensee when the NSW Bergin inquiry found the James Packer-backed group unfit to open its Barangaroo casino in February, and that it remained unsuitable and would be “for some time”.

In his attack on Crown, he pointed to months of evidence of misconduct at the Melbourne casino site, including a tax rort that revealed Crown has now agreed to repay $50 million, though the amount is disputed and he indicated it could be as high as $480 million.

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