If you are a dispassionate investor or analyst you’d have been more than a little concerned at the adverse market reaction yesterday to the interim trading update from embattled casino group Star Entertainment
(ASX:SGR).
Star shares slumped 39 cents, or nearly 21%, to $1.48 at the close after it told the ASX that things were not very good with a massive impairment charge hinted at earlier, now looking very possible.
Star warned the cost of remediation payments (ie fines imposed by regulators in NSW and Queensland and, soon to come, nationally), regulatory changes and increased competition were eating into its earnings and limiting its post-COVID recovery.
Star warned on Monday its revenue dropped 1% on pre-pandemic levels in the December half, and it now expects underlying earnings before interest, tax, depreciation and amortisation – the metric most heavily watched by investors – of between $330 million to $360 million for the financial year.
That compares to $237 million in 2022, which was heavily affected by pandemic lockdowns.
But that is before remediation and other costs.
The Star estimates its remediation costs to total between $35 million to $45 million this year. Half of this is expected to be recurring from next financial year.
The group warned of a non-cash impairment charge between $400 million to $1.6 billion in the half-year results due to the cost of operational changes, changes to the NSW Casino Control Act and a potential increase in NSW casino duty rates.
“Whilst the outcome of recent regulatory and legislative developments remains uncertain, we have taken a prudent approach to assessing the carrying value of our assets, which has resulted in a non-cash impairment charge which will be recognised in our [first-half] results,” Cooke said.
And this is before any fine imposed on Star via the federal court action started by the federal financial intelligence agency, AUSTRAC last November. AUSTRAC alleges multiple breaches of money laundering rules and laws by Star at its casinos in Sydney and in Queensland.
The trading update also revealed the Star’s Sydney casino’s revenue is 13.5% below pre-COVID-19 levels despite the Gold Coast casino’s revenue increasing by 30% on 2019, its highest level on record, and Treasury Brisbane’s revenue increasing by 9%.
That was due to the resumption of domestic travel in the December half year and the end to state border restrictions.
Star is due to report is audited half-year results on February 23.
