JPMorgan weighs in on Blackstone’s revised bid for Crown

Respected brokerage firm JPMorgan has weighed in on whether or not an investment in Crown Resorts is a worthy one, given the news of an $8.9 billion takeover bid that the Crown board is supportive of, from Blackstone.

Motley Fool reports the Crown share price has made a gradual recovery from its single year lows back in August, having emerged relatively unscathed from a series of scandals last year.

Crown is now trading up near its 52-week highs once more, having marched its way up the steps from its lows.

The team at JPMorgan have stepped into the ring and weighed in on the Crown investment debate as well.

The broker released a report, ‘Fourth Round Bell off the ropes to talk about knockout price’, outlining its view on the bid to purchase Crown’s assets.

Blackstone raises offer to $13.10 per share

The bidder, as it turns out, is the asset management and private equity giant Blackstone, who revised its offer to $13.10 per share, up from $12.50.

Previously, Crown’s board was unwilling to engage in any takeover or buyout proposals, however, the question on its willingness to participate in talks has now been removed, according to JPMorgan,.

Analysts at the firm say that “rigur remains” behind its $15 price target, however “given the value of the real estate has always been of a highest and best use nature, there remains plenty of value to unlock”.

The firm also says that Crown has “fewer skeletons in the closet than feared” seeing as Blackstone was granted “non-public due diligence”.

Moreover, seeing the bidder increase its offer by circa five per cent alleviates the fear of any lingering surprises.

With this newfound momentum, JPMorgan reckons that Crown’s prior hesitance on engaging has now changed and now believes The Star Entertainment Group “is still likely to get involved”.

Barangaroo investment to drive Crown’s future growth

Aside from this, JPMorgan commented on Crown’s recent investor day that outlined the investment opportunity in its Barangaroo complex.

The broker said that “the opportunity and roadmap to move forward with regulators presented near-term earnings upgrades for re-opening”.

Regarding valuation, the broker opted to assess Crown’s worth based on an op-co/prop-co structure.

This is simply a way to value a company by dividing it into two parts.

The first concerns operating assets and operating lines in the business (op-co); whereas the second part involves income generating assets like real estate and infrastructure (prop-co).

On its $15 per share valuation, JPMorgan said it “believes the most suitable way to assess Crown’s value is via op-co/prop-co structure.

“Our valuation is based on a 35 per cent FY23 EBITDA to derive rent payment and a cap rate of five per cent, valuation of $5.5 billion and core operating business less rent on a 10 times FY23 EV/EBITDA multiple.”

As such, JPMorgan remains overweight on Crown, seeing as Barangaroo is a “long-term growth driver” and due to the “potential realisation of fundamental value within the real estate property value of Crown’s assets and its core operating business”.

The Crown share price has climbed more than 22 per cent in the last year, after rallying 13 per cent in the past month.