During the second quarter, the Oakmark International Fund, led by guru David Herro (Trades, Portfolio), continued to add to its stake in Melco International Development (HKSE:00200). The fund added an additional 5,565,000 shares of Melco International Development during the second quarter at an average price of 8.84 Hong Kong dollars ($1.14). The trade had a 0.23% impact on The Oakmark International Fund’s portfolio. It now owns 58,032,000 shares of the company.Â
Melco International Development was originally founded in Hong Kong in 1910, and began being publically traded on the Hong Kong stock exchange in 1927. Melco International Development is an investment holding company that operates in these divisions: leisure, gaming and entertainment, technology, and property and other investments.
Melco International Development has a market cap of HK$12.4 billion, an enterprise value of HK$13.67 billion, a P/E ratio of 134.48 and a P/B ratio of 1.00.
During the second quarter, Southeastern Asset Management commented on Melco International.
Southeastern Asset Management Comments on Melco International- July 20, 2016:
Ending the quarter as the Fund’s largest detractor was Melco International (HKSE:00200) (-33%; -2.7%), the Macau casino and hotel operator. Although the company’s $3.2 billion Studio City project (relative to Melco’s market cap of $9 billion) opened in late 2015 and is now generating positive cash flow, construction activity near the property has adversely affected customer traffic flow in the short term. As the construction ends later this year, we anticipate that Studio City’s location and non-gaming attractions will draw more highly profitable mass visitors. Shuttle service to Studio City from other Macau casinos began in June and should boost revenue. In May, Melco Crown Entertainment, the joint venture that owns Melco International’s Macau properties, purchased $800 million of its shares from James Packer at a steep discount, increasing Melco International’s ownership of Melco Crown to 38% and placing Melco International CEO Lawrence Ho firmly in control of the Macau properties. The stock market value of Melco International’s stake in Melco Crown is worth more than 150% of Melco International’s market cap. Ho again increased his personal stake in Melco International.
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According to GuruFocus,Ă‚ Melco International Development has a financial rating of 6 of 10, with a cash to debt ratio of 0.35, which ranks it lower than 64% of the 860 companies in the global resorts & casinos industry. The company also has a 6 of 10 profitability and growth rating with an operating margin of -2.79%, an ROE of 0.82% and an ROC (Joel Greenblatt (Trades, Portfolio)) of 8.06, ranking it above 52% of the companies in the global resorts & casinos industry.
According to Gurufocus, Melco International Development has a 1-star predictability rating based on backtesting results. Stocks with a 4-star predictability rating produce, on average, a 1.1% yearly return over a 10-year sample size. If 1 star predictability stocks are held for 10 years based on backtesting results, they will lose money 45% of the time based on backtesting results, according to GuruFocus.
David Herro (Trades, Portfolio) may have decided to add to the position in Melco International Development because the company recently announced in that it became the single largest shareholder of Melco Crown Entertainment, a leading developer, owner and operator of casino gaming and entertainment casino resort facilities in Asia. The company is in also in a lucrative industry and has reported revenue growth of 42% per year over the previous 3 years, its revenue growth has grown by 113% over the previous trailing twelve months.
Since the third quarter of 2013, when the Oakmark International Fund purchased its original stake in Melco, the company’s stock price has plummeted by an estimated 44%. This may be another factor in why David Herro (Trades, Portfolio) decided to add to this position, as he likely believes the company is undervalued and its market price will eventually bounce back.
Disclosure:Ă‚ Author does not own any shares of this company.
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