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The Star Entertainment Group – The Star’s Market Reaction To COVID-19

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

The Star Entertainment Group Limited (ASX: SGR), formerly known as Echo Entertainment Group is one of Australia’s largest gaming and entertainment groups operating in Sydney, Gold Coast and Brisbane. The Star has a market capitalisation of A$1.49 billion.

 

THE STAR


Update on Coronavirus

The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The World Health Organisation data shows a total of confirmed cases of 462,684 and 20,834 deaths globally. As of today (26 March 2020), there have been over 2,985 confirmed cases and 8 have died of COVID-19 in Australia.


Update on share price

In the last month, The Star’s share price has fallen by 58.46% and is currently trading at A$1.99. The downward trend is due to COVID-19 related directed requiring the closure of all non-essential businesses.


What is The Star’s response to COVID-19

Due to the immediate impact of Government directives throughout the past month, The Star’s operations in Sydney, Gold Coast and Brisbane results in the cessation of gaming actives from Monday (23 March 2020), closure of food and beverage, banqueting and conferencing offerings. However, accommodation services remain open, but in a reduced capacity. Needlessly to say, the closure of casino properties will have a material impact on The Star’s operations.


Furthermore, The Star requested a trading halt on Monday (23 March 2020) to revise operational activities concerning further developments in governmental response to the Coronavirus and related impacts on The Star’s business.


The Star is focused on implementing a range of mitigation practices to minimise impacts and conserve liquidity during this period. The measures will involve materially lowering operating costs and reducing capital expenditure. Additionally, The Star is in the process of temporarily standing down 90% of its workforce, approximately 9,000 employees.

Alongside standing down its workforce, the board and senior management will forego significantly less salaries.


What is the outlook The Star?

Given the uncertainty of the situation, The Star is unable to reliability advise the impacts on financial performance due to the uncertain duration of the current circumstances. However, The Star will implement the necessary measures needed to protect the business while considering the considerable human impact on its workforce.


Management notes that the shutdown of casinos will have a material impact on operations and the consequent impacts are seen on The Star’s share price falling by 58.46% in the past month. However, as on Tuesday (24 March 2020), The star had available cash or undrawn debt facilities of A$480 million. Additionally, as mentioned in The Star’s 2020 half-year results, the business possesses a net debt if A$1.159 million reflecting capital programs and free cash flow impacted by a low 0.73% win rate.


 

Disclaimer:


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.

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