The Star Entertainment Group Limited
SGR Details
The Star Entertainment Group Limited (ASX: SGR) is a gaming and entertainment company operating The Star Sydney, The Star Gold Coast, and Treasury Brisbane segments. The Star Sydney segment owns casino operations with hotels, restaurants, and entertainment centers.
Recent Business Updates and Performance Snapshot:
- As announced on April 8, 2022, the independent review of the Star Casino by The Independent Liquor & Gaming Authority will be extended after the SC appointed Adam Bell has requested additional time to undertake further review until August 31, 2022.
- On April 1, 2022, SGR announced the appointment of Mr. John O’Neill AO as Executive Chairman on an interim basis with an immediate effect.
- As announced on April 01, 2022, State Street Corporation become a substantial shareholder through the acquisition of over 51.24 million shares, representing voting rights of 5.38%.
- On March 30, 2022, Slater & Gordon filed a securities class action suit against SGR in the supreme court. The claim alleges that SGR failed to comply with disclosure requirements and engaged in misleading or deceptive conduct between March 29, 2016, and March 16, 2022. SGR intends to defend the legal proceedings.
- In H1FY22, SGR achieved group revenue of $581 million, a decline of 23% from the prior year. Property shutdowns in Sydney and Gold Coast on the back of the pandemic have negatively affected the sales.
- Its EBITDA dived 87% to reach $31 million owing to cost inflation and a decrease in top-line. SGR made an increased investment in staffing for re-opening.
- It had adequate liquidity with $520 million in cash and undrawn debt facilities.
- SGR continues to progress on the potential sale and leaseback of a minority stake in the Star Sydney property.
Key Financial Metrics (Analysis by Kalkine Group)
Key Risks: The increasing risk of infection may invoke lockdown restrictions and closure of entertainment centers may affect topline growth and squeeze out margin. The company is exposed to the class lawsuit filed by Slater & Gordon. The Independent Liquor & Gaming Authority is conducting a review on SGR for compliance under Casino Control Act 1992 (NSW).
Outlook: The Star Residence is slated to open in Q4FY22. The company showcased strong sales at its Gold Coast Tower 2 apartments with 94% of the apartments pre-sold. Its Queen’s Wharf Brisbane is going as per plan and is expected to open progressively from mid CY2023.
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 is trading closer to its 52-week low price of $3.080. The stock has been corrected by ~12.67% in the past three months, making it a decent opportunity to accumulate. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the lawsuit class action filed by Slater & Gordon. For the purpose of valuation, peers such as Aristocrat Leisure Ltd. (ASX: ALL), Jumbo Interactive Ltd. (ASX: JIN), Ainsworth Game Technology Ltd. (ASX: AGI), and others have been considered. Considering the opening plans of its entertainment facilities, recovery in domestic business post-re-opening, adequate liquidity, upside potential as indicated by the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $3.110 as on 11 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.
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.