The Star Entertainment Group

About the author:

James Lawrence
Author name:
By James Lawrence
Job title:
Former Morgans Analyst
Date posted:
30 August 2016, 11:34 AM
Sectors Covered:
Gaming, Professional Services, Fixed Interest

FY16 result recap

The Star Entertainment Group (SGR) reported normalised revenue of A$2,431m (up 8.6% on the previous corresponding period) which was marginally below our forecast of A$2,443m. Normalised EBITDA was A$556m (up 14% on the pcp) while EBIT was in-line with our expectations at A$392.4m. Reported NPAT was A$194m and a final dividend of 7.5cps was announced, taking the FY16 dividend to 13cps.

FY17 off to a steady start

Trading in FY17 (year to date) has exhibited "satisfactory growth on the pcp". Gross revenue (excluding VIP) is up 4.1% on the pcp to 20 August 2016 while VIP volumes and win-rates are tracking in-line with management expectations. This is positive given the business is cycling strong comps while operations remain disrupted due to the ongoing capital works. We expect that as the works associated with the main gaming floors cease, table revenues should continue to exhibit solid growth resulting in stronger revenue growth over the remainder of FY17.

Earnings changes

We have reduced our FY17 forecasts due to increased operating costs for the group following the company commenting that operating costs as a percentage of revenue are likely to remain broadly consistent with FY16. Star has exhibited strong operating leverage over the past few years but we expect this to moderate in FY17, and improve again in FY18.

Upcoming catalysts

The company's AGM is due to be held on the 28 October 2016 when a trading update is usually provided to the market.

Recommendation and key risks

Customer visitation and spend are key drivers for Star as is the group's ability to control staff cost inflation. Risks to our valuation include adverse changes in the global economic environment, a reduction in consumer spending, competition and regulatory changes. 

We retain our Add recommendation.

More information

Morgans clients can login to view our share price target and the full report on The Star Entertainment Group (SGR). Alternatively, please contact your nearest Morgans office for access.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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