Takeover target - see this

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    How to bet on gaming stocks
    By GRAEME JAMES
    02mar02

    INVESTORS seeking steady growth have put their faith in the fortunes of gaming stocks only to be disappointed in the fluctuating results of casino stocks compared with TAB shares.

    Analysts say an understanding of how different types of gaming operations gain their profits will go a long way to making wise decisions on acquiring these type of shares.

    Investing in stocks like Jupiters, Burswood or Crown Casino or any of the listed TAB operations will also depend on investors knowing whether their risk profile is for defensive or growth stocks. The gaming sector is undergoing change as major casino players seek further diversification, while several TAB players are on the acquisition trail.

    ABN Amro's Bruce Low says the attraction of the gaming sector is that most investors see the industry as recession-proof.

    "Historically evidence suggests gambling turnover is not affected by the economic climate," Mr Low says. "(However), the TABs are more defensive stocks with their pretty predictable cash flow."

    Sophie Mitchell, senior analyst at ABN Amro Morgans, says investors should also realise that half-year results of casino stocks can fluctuate, but even out in the long term.

    "Half-yearly results are (also) partly dependent on the performance of premium gaming, a highly regulated industry (and) political and community sensitivity to gaming," Ms Mitchell says in a review of Jupiters.

    Operational strengths of Jupiters in the latest half year were in commission gaming as well as keno and its Centrebet sports betting operations, Ms Mitchell says. Commission gaming, including the big-spending high-rollers, can often make or break a casino's profits.

    However, while there is a theoretical win rate of about 1.28 per cent to the house, the group's profits will depend on the amount of money being wagered, the number of big spenders being attracted and the number of times their winnings are turned over.

    Jupiters managing director, Rob Hines said last month that Jupiters' high-roller business was inherently more stable than some other casinos because it aimed for the middle of the market rather than at the biggest gamblers.

    High-rollers winning more than expected at Kerry Packer's Crown Casino caused revenue and profit to drop sharply in the latest half year. Perth's Burswood casino group also had a difficult six months with gaming revenues down 0.9 per cent to $148 million. Its international high-roller business climbed $7.6 million to $42.3 million, largely because of a high win percentage of 1.56 per cent, up from 1.28 per cent in the previous period.

    The various TAB groups operate in a market that is more inherently stable, analysts say.

    "Wagering earnings are dependent on wagering turnover and take-out commissions," ABN Amro Morgans' Ms Mitchell says.

    "Wagering in Australia is a relatively mature market and will grow broadly in line with economic growth."

    Moves by the major players in both casinos and TABs have seen attempts at diversification into each other's fields of activity. There has been speculation that Tabcorp Ltd could be interested in launching a bid for Jupiters following that group's recent unlocking of its restrictive founder shareholding structure.

    "Jupiters can now be technically taken over," Ms Mitchell says. Tabcorp, which owns Sydney's Star City casino, has denied it is running its ruler over the Queensland gaming house.

    ABN Amro's Mr Low said both Burswood and Jupiters were seen as likely takeover targets from local and international players with the NSW's TAB Ltd also said to have already taken a "serious look" at Jupiters.

    Courier-Mail 25/04/02
 
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