Echo Entertainment Group chief executive Matt Bekier says a turnaround in performance at the company’s flagship casino, The Star, helped the company more than double its profit in the first half of the financial year (from 1st July to 31st December). According to the Sydney Morning Herald, Echo plans to boost The Star further with more targeted marketing and A$500 million (US$) in capital works over the next five years.
The Sydney casino, which has finally hit payback targets outlined prior to an A$870 million refurbishment that began in 2009, was the main contributor to Echo’s net profit rising 111% to A$97.1 million in the six months ended December 31, 2014.
The Star is operating in line with normalized earnings before interest, tax, depreciation and amortization of $340 million in the year, which was the target set in 2009 to recoup Echo’s cost of capital on the refurb. Mr Bekier said the milestone had come six months late but he was satisfied that The Star was heading in the right direction.
“I take great pride in the fact that the property is finally hitting its groove,” Mr Bekier told Fairfax Media. “There is a lot more good stuff to come. Our staff are engaged and excited about where we’re going, so I’m really optimistic about the future.”
Despite Echo’s significant financial turnaround in the past year, the Herald highlighted a handful of challenging issues that remain.
In Sydney, Echo has about five years before it has a competitor in the city for the first time, when rival James Packer’s Crown Resorts opens its A$2 billion hotel and casino at Barangaroo.
In Queensland, where it operates Brisbane’s Treasury Casino and Jupiters on the Gold Coast, its bid to build a multibillion-dollar casino and entertainment complex in the capital is on hold after a shock election result on 31st January plunged the state into limbo.
Echo revealed it has spent A$9 million so far on its joint venture bid to redevelop the Queens Wharf precinct, which pits it against a bid from Crown and Chinese property developer Greenland Holdings. Mr Bekier said the tender was on hold until a government was formed.
Mr Bekier said the half year finished “well ahead of guidance provided at the AGM” in October. The company forecast normalised EBITDA of A$245 million to $260 million, and delivered $261 million. Of that, $183 million came from The Star. Normalised revenue—which discounts the volatility associated with high-roller play—rose 28.3% to $1.2 billion.
The VIP rebate business, which refers to high-rollers who commit upfront to gambling large amounts in return for subsidized gambling and luxurious accommodation, posted a 97% rise in normalized revenue to A$332.2 million, with total bets of $23.2 billion. Mr Bekier said Echo had been immune to the slowdown in VIP gambling activity that has plagued Macau.
Citi analyst Michael Goltsman said despite some deterioration in margins, due to a greater proportion of costly VIP business and a higher tax bill, the result was a strong beat of consensus at the net profit level. “While the company’s strong operational execution suggests further growth to earnings, we view the shares as being fairly priced due to the risk overhang from the pending Brisbane decision,” he said in a note.
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