Relationship break-ups are not always bad for the wallet. Just ask James Packer. This year he returned to the board of Crown Resorts, the A$9bn (US$7bn) Australian casino operator of which he owns nearly half, after a 14-month absence and a failed romance with singer Mariah Carey. Thursday was One Sweet Day for shareholders as Crown’s shares jumped 8 per cent, despite weak results for the first half.
The market’s response to the poor numbers is hard to fathom. True, they were largely expected after months of negative newsflow. Detention of Crown employees in China put pressure on the VIP business, which has nearly halved, according to a December trading update. That dragged revenues and underlying profits down a tenth.
Crown has shelved plans for overseas expansion. It is to sell down Melco Crown, its Macau venture, to raise cash for debt reduction and capital returns. More than A$1bn was earmarked for payouts and a buyback. The shares barely reacted when all this was announced in December.
Nor would the company’s fourth boardroom shuffle in 18 months seem obvious cause for celebration. Chairman John Alexander will become chief executive, too, while Mr Packer’s return to the board suggests it is less likely that Crown will be taken private.
That leaves Crown’s new dividend policy as the obvious catalyst for the excitement. The special dividend of A$0.83 was well flagged, but it has also committed to paying out 60 cents a year “subject to the company’s financial position”. This is, in fact, terrible news. Pledging flat or rising dividends in an unpredictable environment is promising The Impossible — miners BHP and Rio Tinto once made similar pledges, only to have to revert to payout ratios when the commodity cycle turned down.
The casino outlook is uncertain. Not only is the China VIP business weak, Japan is expected to open up as a new regional competitor. Crown still needs to play its cards with caution.
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