James Packer and his minions have obviously been very distracted this year. How else could he allow a small but significant error in the reporting of his precise holding in PBL to go uncorrected for more than six months?

On 2 January, Packer filed a director’s notice which showed that on 22 December, 2006, he had transferred more than 1.3 million shares from two private companies, Cairnton Holdings and Snowlove to the main company, Consolidated Press Holdings. Because the transactions reported were transfers, there was no change in Packer’s total holding.

But at 5.24pm on Friday, PBL submitted a new director’s interest notice for Packer showing the sale of $57 million worth of PBL shares more than six months after the transactions occurred on 21 December, one day before the transfers referred to in the January 2 notice. They were sold at a price of $21.28, compared to Friday’s close of $19.83.

The new statement released on Friday showed that Consolidated Press Investments sold more than 2.3 million PBL shares on a market worth $49.7 million and another related company, Consolidated Press Property, sold nearly 348,000 shares valued at $7.4 million on the same day. That’s more than $3.8 million above what he would have got in selling the shares last Friday.

Friday’s filing contained no explanation and it cut CPH’s (and Mr Packer’s) holding in PBL to 261.5 million shares from 264.2 million shares. His current holding is around 38.7% of PBL, compared with around 39.2% on the incorrect filing in January. It’s sloppy bookkeeping to say the least. But when you’re worth billions, it must be quite easy to mislay $57 million.

Meanwhile, the reason for the market’s current unease about PBL is based on its big involvement in the Macau gambling industry. This view is nicely illustrated in an update on PBL from US investment bank, Merrill Lynch, this morning:

Remain cautious on Macau

Our recent trip to Macau has reinforced our cautious view on both the overall market and PBL’s returns to be generated over the next 3 years. In our mind there are 3 key issues for MPEL and the Macau market in general: 1) dilution from upcoming additional supply and associated competition, 2) striking a successful strategy with junket operators in the VIP business and 3) further regulatory restrictions introduced to cool the high growth rate

Macau supply increase is significant

While revenue growth of >40% over the last 3 quarters to June is impressive, 2007 will see an annual table increase of 71% with slots increasing by 119%, largely a result of the opening of the Venetian in August and MGM in 4Q07.

Earnings changes

Post our trip we have downgraded our PBL earnings by 1%, 4% and 3% over FY07-FY09E. These changes are entirely Macau related and reflect a 1) a 25% reduction in FY08E VIP win rates at Crown Macau with EBITDA margins reduced to 11% from 17% previously, 2) reduced slot numbers and slot drop expectations and 3) A$ forecast lifted to 85¢ from 78¢ previously.

Maintain Neutral

We are not of the view that the impending demerger will likely provide a significant catalyst for PBL, and would expect the two stocks (Crown and CMH) to continue to trade at a discount to valuation (just as PBL has done for some time) due to Macau related concerns and holding company discounts. Our $21.70/sh value comprises $14.40/sh for Crown, $4.30/sh for CMH and $3.00/sh for the cash.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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