Star Entertainment Group Limited
Approaching Two Years of Visiting Sydney's Casino: 1H19E Observations, Takeaways, and Result Preview
Overweight
SGR.AX, SGR AU
Price: A$4.47
Price Target: A$6.10
We have visited SGR’s Sydney property almost every Monday evening since March 2017 to take note of changing slots, construction/disruptions, occupancy & activity across key gaming segments. Key 1H19E result takeaways: 1) Sydney observations imply soft main gaming floor table growth with AGM update signaling Sovereign room strength; 2) MTGM areas remain strong (refurbished) as slot growth is mixed by jackpot, Lightning Link, and Dragon Link activity; 3) Sydney Food & Beverage weaker in 1H19 per our observations (and closure of Balla restaurant); 4) 1H19 Brisbane EGM expenditure up 0.2% on the pcp as Gold Coast is down -0.1% with flat slot revenue expected in Queensland; and 5) ALL land-based performance update with key SGR observation tables overleaf. We adjust our FY19 earnings by -2.1% based on our observations. Retain Overweight, Dec-19 PT A$6.10.
- Group domestic gaming revenue forecast +5.5% in 1H19. Sydneyspecific1H19trends appear mixed: Tables: forecast in-line with management comments from AGM, JPMf +7.4% with support from Sovereign room. MTGM’s: improved on 1H18 trends from refurbishments. Slots: installation of strong products but mixed jackpot play. VIP: visitation positive and forecasts unchanged. F&B: weakness and closure (Balla) observed during events and holiday periods, JPMf +1%. Tournaments: positive activity continues during World Series of Poker.
- EGM data continues to support ALL performance. Star Sydney’s distinct “New Games" and regulatory benefit continue to support ALL’s ongoing land-based strength as recent 3-month performance data highlights overleaf. Key new 1H19 slots: ALL’s PC Opal edition, SGMS’s 5 Echo Fortune, Aruze’s Cannonball, Konami’s Spin Ball & Dynamite Dollars, and Atlas’ EGMs.
- Retain Overweight. SGR is delivering on initiatives to improve the domestic offering and reinvesting in the customer through product/loyalty. Hotel openings will boost main gaming revenue while VIP turnover appears insulated by direct marketing initiatives and provides potential upside despite industry uncertainty. Retain Overweight, Dec-19 PT A$6.10.
Star Entertainment Group Limited (Reuters: SGR.AX, Bloomberg: SGR AU)
Year-end Jun (A$) FY17A FY18A FY19E FY20E FY21E Revenue (A$ mn) 2,337 2,695 2,818 2,971 3,102 EBITDA (A$ mn) 515 588 627 656 685 Net Profit (A$ mn) 264 148 268 293 306 EPS (A$) 0.32 0.18 0.29 0.32 0.33 P/E (x) 14.0 25.5 15.3 14.0 13.4 EV/EBITDA (x) 9.7 8.1 7.8 7.9 7.7 DPS (A$) 0.16 0.20 0.23 0.24 0.25 Dividend Yield 3.6% 4.6% 5.0% 5.4% 5.6% Normalised EPS (A$) 0.26 0.31 0.29 0.32 0.33 Normalised EPS Growth (11.1%) 17.6% (4.2%) 9.3% 4.1% Normalised PE 17.2 14.6 15.3 14.0 13.4 Source: Company data, Bloomberg, J.P. Morgan estimates.
Company Data Shares O/S (mn) 917 Market Cap (A$ mn) 4,100.43 Market Cap ($ mn) 2,952.93 Price (A$) 4.47 Date Of Price 16 Jan 19 Free Float(%) - 3M - Avg daily vol (mn) 3.78 3M - Avg daily val (A$ mn) 17.20 3M - Avg daily val ($ mn) 12.4 ASX100 4817.60 Exchange Rate 0.72 Price Target End Date 31-Dec-19 Price Target (A$) 6.10
