Fund Manager Summary on Star Entertainment Group Ltd (ASX:SGR)
Star Entertainment Group Ltd (ASX: SGR) faces significant near-term challenges, reflected in a 34% share price decline in September 2024 to around $0.30 post-FY24 results release. Fund managers note that the company's earnings remain depressed due to high remediation and compliance costs, resulting in negative EBITDA. Although substantial value exists in the group's property assets, with estimates ranging from $700 million to $2.7 billion depending on valuation methods, the path to recovery is fraught with risks, including substantial cash outflows and uncertainties surrounding upcoming debt obligations. Despite these hurdles, optimism exists regarding the new CEO's potential to navigate the remediation and transformation processes, suggesting long-term value may be realized if current challenges are effectively addressed.
Commentary From The Managers
There are 3 insights from 2 fund managers regarding their investment in Star Entertainment Group Ltd (ASX:SGR) available on Thesis Tracker.
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Updates are made available to members within 12 hours of being released. The completeness, accuracy or current status of the investments referenced are not guaranteed.
Commentary From The Managers
Wilson Asset Management
30 Sept 2024
$0.30
Summary
- The Star Entertainment Group (ASX: SGR) was a detractor from investment portfolio performance due to a sharp sell-off during trading resumption.
- Wilson Asset Management continues to see significant value in the company.
- There is an acknowledgment that the path to unlocking value is longer and more challenging than previously anticipated.
- Asset-rich companies like Star can trade through difficult times.
- Wilson Asset Management expresses confidence in the new CEO's ability to deliver on the remediation and transformation plan.
Spheria Asset Management
30 Sept 2024
$0.30
Summary
- Star Entertainment Group (SGR.ASX) share price declined by 34% in September after the delayed release of FY24 results.
- There are several critical factors impacting SGR’s earnings outlook, including a weak economy and management’s execution on cost reductions.
- The introduction of carded gaming and the duration of ongoing remediation costs remain significant considerations.
- Current earnings are heavily depressed, mainly due to high remediation and compliance costs, leading to negative EBITDA.
- There is substantial value in the group’s property assets; estimates range from $700m (24 cents per share) based on hotel room values to $2.7bn (94 cents per share) on a replacement cost basis.
- If earnings recover post-remediation, the group could potentially be valued at $1bn (35 cents per share) or more.
- Due to high risks of default from anticipated short-term cash outflows, Spheria Asset Management decided to reduce the position size.
- There are uncertainties surrounding debt tranche 2 ($100m), which is contingent on raising $150m of subordinated debt by December 2024, posing a dilution risk.
- Overall, the investment has notably underperformed due to underestimated regulatory risks and significant early losses at the QWB project.
Spheria Asset Management
30 Sept 2023
$0.62
Summary
- Star Entertainment Group (SGR.ASX) share price decreased by 34% in the last month due to a capital raising initiative.
- The company successfully raised $750m to manage higher cost debt and refinance its facilities.
- Spheria Asset Management believes this positions SGR better to handle upcoming liabilities, particularly the AUSTRAC penalty.
- The market is anticipating a potential agreement regarding the AUSTRAC penalty in November.
- Expected penalties may be installment-based, aiming to support manageable cash flows.
- Other significant liabilities are related to the Queens Wharf development, which Spheria views as manageable.
- Long-term prospects for SGR are considered favorable, especially after addressing current distress points.
- Spheria Asset Management continues to hold because distressed phases often present the opportunity for significant returns.
The completeness, accuracy or current status of the investments referenced are not guaranteed.
Frequently Asked Questions
Who is investing in Star Entertainment Group Ltd (ASX:SGR)?
Fund managers including Spheria Asset Management and Wilson Asset Management have invested in Star Entertainment Group Ltd (ASX:SGR).
Why do fund managers invest in Star Entertainment Group Ltd?
Fund managers invest in Star Entertainment Group Ltd due to its significant property assets, which offer potential for substantial valuation upside. Despite current financial pressures from elevated remediation costs and compliance issues, there is belief in the long-term recovery of earnings. The company's recent capital raising has improved its debt position, helping to manage liabilities. While investment risk is heightened, the potential for returns in the gaming sector remains attractive, particularly if execution on management's plans improves.
What happened to Star Entertainment Group Ltd (ASX:SGR)?
There have been no recent updates from fund managers regarding Star Entertainment Group Ltd although fund managers including Spheria Asset Management and Wilson Asset Management have previously commented.
What is the short interest in Star Entertainment Group Ltd (ASX:SGR)?
The short interest in Star Entertainment Group Ltd (ASX:SGR) is 1.70% which makes it the 154th most shorted stock on the ASX. Of the 6.6B shares that Star Entertainment Group Ltd has on issue, 112.5M have been sold short.
What does Star Entertainment Group Ltd (ASX:SGR) do?
The Star Entertainment Group Ltd. engages in the management of integrated resorts with gaming, entertainment, and hospitality services. It operates through the following segments: Sydney, Gold Coast, and Brisbane. The Sydney segment offers casino operations, including hotels, restaurants, bars, and other entertainment facilities. The Gold Coast segment consists of casino operations, including hotels, theatre, restaurants, bars, and other entertainment facilities. The Brisbane segment includes casino operations, including hotels, restaurants, and bars. The company was founded on March 2, 2011 and is headquartered in Brisbane, Australia.