Analysts Ponder Packer Prospects

Sydney Morning Herald

Wednesday December 5, 2007

Miriam Steffens

ANALYSTS have been crunching the numbers on James Packer's new gambling and media companies, publishing stock recommendations on Crown and Consolidated Media Holdings.

The ratings were divided between hold and buy, with the brokerages forecasting solid cash flows from Crown's Australian casinos and acknowledging the growth potential of its gambling investments in North America and Macau. CMH's fortunes will be firmly tied to the success of pay television in Australia, as its minority stakes in Foxtel and Fox Sports are expected to generate most of its profits.

CMH is the nation's fourth-biggest media company after News Corp, Fairfax Media and the Seven Network. It will have one of the "strongest earnings growth profiles" in the industry, driven by the pay TV assets and its investment in the jobs website Seek, said Christian Guerra, of Goldman Sachs JBWere.

The stake in PBL Media, which owns ACP and Channel Nine, makes up less than a fifth of CMH's value.

Rebuilding Nine will take at least three years, said Finola Burke, of Credit Suisse. "We would anticipate that at some future point ... CVC Equity might acquire the remaining 25 per cent," she wrote, adding that last week's split of Publishing and Broadcasting "may well be the trigger for this negotiation".

Brokers surveyed saw CMH trading at between $3.80 and $4.80 in a year's time, depending on the discount they put on the shares for the fact that CMH does not own any of its assets outright. The lack of control brought uncertainty about how much in distributions the businesses would pay to CMH, they said.

"Attractive portfolio ... pity about the structure," wrote Andrew Anagnostellis, of Deutsche Bank, rating the stock a hold. Mr Guerra also advised investors to hang on to it as "corporate interest in CMH will be high, and therefore we expect ongoing speculation" about takeovers bids.

Crown was Credit Suisse's "top pick" in the gambling industry. The broker forecast the stock would rise to $16.75, with income from Macau swinging from a loss to a "solid profit" in the second half of 2008. Adam Alexander of Goldman Sachs JBWere was more muted, citing Crown's "significant degree of development and execution risk". He gave it a hold rating, with a target price of $15.25.

CMH closed 16c higher at $4.18 yesterday, having gained 5.8 per cent since Monday. Crown's stock dropped 57c to $13.70, falling below its nominal listing price of $13.85.

© 2007 Sydney Morning Herald

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