Ord Minnett Research Recommendation: Star Entertainment Group (ASX: SGR)
Star Entertainment Group (Star) has flagged competitive pressures from Crown’s Barangaroo operation in Sydney, something Ord Minnett had noticed affecting the business in late September.
First-half FY23 performance so far has been mixed across geographies. Sydney domestic revenues were down 11% versus the equivalent period in 1H19; while strong performance for both Queensland casinos (Gold Coast domestic revenue was up 32% vs pre-covid levels, Brisbane up 9%) offset this Sydney weakness. The net result of the above was group domestic revenues rose 1% on 1H19 levels – and this came in above our prior estimates.
Star has attributed the weaker Sydney performance to compliance changes and has now recognized competitive impacts from Crown Barangaroo now being open. This correlates with our Star Sydney observations with attendance weakening over more recent data points.
We note Star has quantified the impact of additional remediation costs; and reiterated that covenant relief on its debt is not required in FY23, but this is based on current trends being maintained.
We lower our FY23 and FY24 EBITDA forecasts by 0.2% and 0.4%, respectively. This largely reflects weaker than expected Sydney trading, offset slightly by stronger Queensland performance. We also lower our forward-looking margin assumptions due to higher ongoing regulatory and compliance costs. We cut our price target to $3.35 from $3.55 but maintain our Buy recommendation.
Walter Watson
RESEARCH EDITOR
Walter is the Editor of Ord Minnett's retail investor publications, such as the Opening Bell, Ords Weekly and the Ords Monthly, along with various investment guides and investor information published by Ord Minnett.