The Star Entertainment Group Limited
SGR Details
Material Updates: The Star Entertainment Group Limited (ASX: SGR) manages integrated resorts such as the Star Sydney, the Star Gold Coast, and Treasury Brisbane. It offers gaming, entertainment, and hospitality services. On 11 April 2022, L1 Capital Pty Limited and their related entities increased its interest from ~48.52 million shares to ~60.37 million shares, depicting ~6.34% of the voting power now in SGR.
Highlights of 1HFY22 (Ended 31 December 2021) & Trading Update (YTD2022):
- SGR has signed an agreement to divest an interest in the Treasury Casino, Hotel and Car Park for ~$248 million in 1HFY22. It estimates to complete the first tranche sale for ~$170 million in 2HFY22.
- Group revenue increased by ~7% Y-o-Y from 1 January 2022 - to 13 February 2022. Revenue recorded from the Sydney property increased by ~20% Y-o-Y during the same period as the COVID-19 related restrictions relaxed in the December 2021 quarter.
- The net debt increased to ~$1,223.2 million as of 31 December 2021 versus ~$1,171.4 million as of 30 June 2021 due to COVID-19 property shutdowns.
Improved Liquidity Status; (Analysis by Kalkine Group)
Key Risks: The company faces the COVID-19 challenges related to operating restrictions, tight labour supply, rising costs, staff absenteeism, and supply chain pressure.
Outlook:
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of SGR gave a negative return of ~7.18% in the past three months and a negative return of ~14.12% in the past six months. The stock is currently trading near its 52-weeks’ low level of ~$3.030. The stock has been valued using the P/E-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ median P/E multiple, considering a rise in net debt, continued COVID-19 risks, tepid 1HFY22 performance, and mounting losses, etc. For this purpose of valuation, a few peers like Aristocrat Leisure Ltd (ASX: ALL), Tabcorp Holdings Ltd (ASX: TAH), Skycity Entertainment Group Ltd (ASX: SKC) have been considered. Considering the current trading levels, revenue growth reported upon the re-opening of the Star Sydney (Oct-Dec 2021), non-gaming revenue growth, various project initiatives underway with a cost focus, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $3.100, down by ~1.898%, as of 26 April 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
SGR Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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