Banking group Morgan Stanley is keeping its “overweight” rating for shares in Asian operator of casinos Melco Resorts and Entertainment Ltd in spite of recent acquisitions by the company outside its main market in Macau.
The stockbroking arm of Morgan Stanley issued on Wednesday a note to that effect.
Melco Resorts announced recently two acquisitions. On Monday, the firm said it would pay its parent company, Melco International Development Ltd, approximately US$375 million for 75 percent of ICR Cyprus Holdings Ltd, the developer of the City of Dreams Mediterranean casino resort in Cyprus. Nasdaq-listed Melco Resorts and Hong Kong-listed Melco International, are led by gaming entrepreneur Lawrence Ho Yau Lung.
In late May, Melco Resorts said it would pay nearly AUD1.76 billion (US$1.22 billion) for 19.99 percent of Crown Resorts Ltd, an Australian operator of casinos. Corporate predecessors of Melco Resorts and of Crown Resorts had previously linked to invest and develop casinos in the Macau market.
Morgan Stanley said in its note that it thought both recent stock acquisitions would have a neutral effect on the price of shares in Melco Resorts.
The institution’s analysts Praveen Chouhary and Elise Kennedy added: “Recent acquisitions of Crown [Resorts] and City of Dreams Mediterranean stretched the balance sheet, reduced free cash flow to equity, and capped the dividend, but near-term market share gains and medium-term growth options keep us ‘overweight’.”
Morgan Stanley stated it felt bullish about the casino operator’s prospects of being a leader in the Macau market during 2019 in terms of expanding earnings before interest, taxation, depreciation and amortisation; possibly by as much as 11 percent year-on-year.
The analysts also noted: “While we do not expect a higher dividend or buyback in the near term, we highlight management’s intention to do just that. Melco Resorts has steadily increased its regular dividend, paid special dividends and has bought back shares worth US$3.0 billion since 2014, with a total dividend return of US$1.8 billion, including a special dividend of US$350 million in 2015, and US$650 million in 2016.”
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Adjusted EBITDA reported by Asian casino operator Melco Resorts and Entertainment for the fourth quarter of 2020