Star Entertainment Group shares recovered some of Tuesday’s big slide in the wake of the Sydney based gambling group surprise downgrade in its 2018-19 earnings forecasts.
The cut in the forecast was only around $3 million (off the back of weak revenues and more wins by high rollers) but it was enough to spook investors who sold the shares at one stage by more than 18%. They closed Tuesday down 15.7% at $3.80.
That was real punishment with the wider market up 102 points or 1.6%.
Yesterday Wall Street weakened, the tone there was nervier and the wider market was tentative all day and Star shares fought back to end up 0.8% at $3.83.
The shares were up more than 2% at one stage but faded as the wider market fell into the red in afternoon trading.
That’s a long way from last Friday’s close of $4.51 and a measure of the caution about Star Group’s results and the outlook.
Complicating matters for Star now after the weak update is the view that perhaps James Packer was right in selling much of his stake in rival Crown Resorts to Lawrence Ho’s Melco group of Macau and leaving him with the problematic outlook for the casino sector in the new financial year.
Analysts noted Star’s surprise comments about the revenue weakness – with the problem more acute in Sydney.
Star said in Tuesday’s statement “domestic revenue growth trends across The Star properties have softened since the release of first-half results, with domestic revenue between 1 January and 8 June 2019 up 0.3% from the same period of 2017-18. Total domestic revenue in the financial year is up 3.1% on 2017-18.
“Based on these revenue growth rates, The Star expects 2018-19 normalised [earnings] in the $550 – $560 million range”, compared to earnings of $568 million in 2017-18.
Star said the lower earnings are due to macro-economic conditions, less activity in private gaming rooms, and the impact of renovations at The Star in Sydney.
Revenue from slot machines is up 1.6% thanks to busier machines in Queensland, but flat in Sydney. Table game revenue is down 0.8%, but non-gaming revenue is up 1.2%. The biggest drop is a 16.5% decline in front money from international VIPs.
On cost savings, Star said, “The previously announced creation of centres of excellence in Gaming and Marketing enables the Group to improve capability, processes, and decision-making.”
“These improvements allow the consolidation of functions and provide the opportunity to generate material cost savings across non- customer facing functions and areas.
“Given the current revenue environment, initiatives to deliver these cost savings have been brought forward, with a targeted $40-50 million per annum cost savings run rate to be achieved by end 1Q FY2020.
“The Group will provide an update at the FY2019 results on the expected impact and associated restructuring expenses recognised as significant items in the FY2019 results,” said.
