Here's how the potential acquisition of Echo hurt Genting

GENS' share price was dragged by the market's assumption that Echo Entertainment Group is a low value-accretive acquisition.

Here's more from Macquarie:

We believe that another drag on GENS’s share price has been the speculation around the potential acquisition of Echo Entertainment Group in Australia. The market has seen any potential for this acquisition as being negative and not highly value-accretive, although we note that Australia is regionally a more attractive market than many Asian investors appreciate and will also provide revenue synergies to GENS.

Nonetheless, what we find interesting is that the market has “marked down” GENS for the potential acquisition (assuming that its not going to be highly return-accretive), without giving the company any credit for the incremental revenues and EBITDA it would generate from the acquisition itself (i.e. giving GENS all the downside, but none of the upside).

In addition, we note that GENS has deployed capital well in Singapore and generated strong returns, as well as in the Philippines and with Norwegian Cruise Lines (NCL). Hence, even if the management does not return capital via dividends, we think it is unfair to assume that the cash will be burned in low value-accretive acquisitions.

We note that in another of the Genting family companies (Genting Malaysia) while dividends are not being paid, the company is doing regular share buy-backs, which is a form of capital return.

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