Star Entertainment Group (ASX: SGR) is up 5% at the open today, having announced results in line with guidance. Domestic EBITDA is up 5.4%, alongside healthy margin expansion across the business. Their capital efficiency improved, as new investments in Queen’s Wharf, the Gold Coast and Sydney remain on track.
One weakness in the results though is VIP gaming, which is down 35% over the previous year. This was driven primarily by a lower average spend per patron, a measure which declined 30% in FY19. Their domestic business is still impacted by an Asia led slowdown in VIP gaming, as Australia remains a popular destination for high rollers and is sensitive to changes in demand.
Star Entertainment is down more than 30% from this time last year, as a slowdown in China adversely affected international gaming demand. A global economic slowdown also had adverse effects on the business, contributing to a downgrade in June. This highlights the importance of tailoring your portfolio to the stage we are in the economic cycle, an investment outlook which caused us to exit out position in Star before June and avoid the downgrade.
The Star recently proposed an extra $2bn investment to expand their Gold Coast resort, which has been approved by the Queensland Government. In combination with the existing $1.5bn Star Grand and Sheraton Grand Mirage asset, as well as their $850m expansion of the existing property, the additional project takes its total investment to $4.35bn. They pledged to deliver this upgrade with no extra poker machines and would take the total size of their projects to 3000 rooms/ apartments.
The additional investment would make Star’s asset larger than the world-famous Marina Bay Sands in Singapore and be comparable to large resorts in Las Vegas, putting in on the global map. It’s a bold bet at the top of a cycle, being unprecedented in scale within the Queensland market. While the city is booming and is an attractive tourist destination, it remains to be seen how long it will take for the investment to pay off.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978) (“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.