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SGR

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2.38%

20.5¢ the star entertainment group limited

JP Morgan - Maintaining Overweight PT $6.10, page-3

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tone124

27 Posts.

3

18/01/19

16:34

Post #: 37158725

Originally posted by HBthejet: ↑
Investment Thesis, Valuation and Risks
Star Entertainment Group Limited (Overweight; Price Target: A$6.10)
Investment Thesis
Retain Overweight. SGR has seen defensive, stable and transparent domestic earnings growth and has invested strategically in expansion and refurbishment in the domestic market. SGR’s domestic gaming offers a high-margin, predictable and recurring portion of earnings, and the company is delivering on initiatives to improve the domestic offering by reinvesting in the customer and driving tourism through product and loyalty. We expect to see continued earnings growth, particularly from its projects in Brisbane and the Gold Coast, coupled with disciplined capital allocation. SGR is now the preferred destination for VIP turnover in Australia with significant momentum. Investing in the domestic offering via loyalty programs/JV is expected to drive strong earnings growth starting in 2H19. Queens Wharf and hotel room expansions remain the key long term drivers, although increased capex and regulations remain risks. We note the risks surrounding VIP volatility, but we believe SGR remains the better-performing Australian casino operator in VIP play.
Valuation
Our share price target to Dec-19 remains at A$6.10 per share, based on our SOP (A$5.48) valuation, rolled forward to Dec-19 at SGR’s cost of equity and adjusted for dividends where appropriate. We calculate our SOP valuation based on the individual cash flow streams of each business segment. Our group post-tax WACC is 8.2%. The key figures that make up this discount rate are a cost of equity of 9.7% and a post-tax cost of debt of 3.7%. We apply a Beta of 0.95 within this calculation.
Risks to Rating and Price Target
Key downside risks to our OW rating and price target include a retraction of consumer spending and/or a shift in HDI gaming allocation, continued volatility and low-margin revenue from international VIP clients and a potential structural decline in VIP revenue. SGR is susceptible to delays or unanticipated costs associated with its refurbishment/ growth strategy. If expansion projects are not completed or face unexpected headwinds from legal issues, this could have material impacts on earnings. There is also the ongoing risk of regulatory changes in the gaming industry and the upcoming construction and opening of CWN’s casino in Barangaroo.
Star Entertainment Group Limited

1 A$ in millions, year end Jun

2 Profit And Loss FY17 FY18 FY19E FY20E FY21E
3 Revenue 2,337 2,695 2,818 2,971 3,102
4 Revenue growth (3.9%) 15.3% 4.6% 5.4% 4.4%
5 COGS (1,822) (2,107) (2,191) (2,316) (2,418)
6 Operating Expenses 0 0 0 0 0
7 EBITDA 515 588 627 656 685
8 EBITDA growth (7.4%) 14.2% 6.7% 4.5% 4.4%
9 EBITDA margin 22.0% 21.8% 22.3% 22.1% 22.1%
10 Amortisation - - - - -
11 Depreciation (165) (187) (206) (199) (205)
12 EBIT 351 401 422 457 480
13 Other Income - - - - -
14 Other Expenses - - - - -
15 Net Interest (42) (34) (38) (37) (43)
16 Pre-Tax Profit 308 367 383 419 437
17 Tax (94) (108) (115) (126) (131)
18 Tax Rate 30.4% 29.6% 30.0% 30.0% 30.0%
19 Minorities 0 0 0 0 0
20 Abnormals (post tax) 50 (110) 0 0 0
21 Reported NPAT 264 148 268 293 306
22

23 Normalised NPAT 215 258 268 293 306
24 Growth (11.1%) 20.3% 4.0% 9.3% 4.1%
25

26 End of Period Shares 826 845 917 917 917
27 EFPOWA 828 846 917 917 917
28

29 Reported EPS ($) 0.32 0.18 0.29 0.32 0.33
30 Normalised EPS ($) 0.26 0.31 0.29 0.32 0.33
31 Growth (11.1%) 17.6% (4.2%) 9.3% 4.1%
32

33 DPS ($) 0.16 0.20 0.23 0.24 0.25
34 Growth 23.1% 28.1% 9.8% 6.7% 4.2%
35

36 DPS/EPS payout 50.1% 117.1% 76.9% 75.0% 75.0%
37

38 Cash Flow Statement FY17 FY18 FY19E FY20E FY21E
39 Net Profit for Cashflow 264 148 268 293 306
40 Depreciation & Amortisation 165 187 206 199 205
41 Non Cash Items - - - - -
42 Working Capital Changes (3) 9 38 3 6
43 Other Operating Cashflows 47 53 40 39 44
44 Cashflow from Operating Activities 473 397 551 534 561
45

46 Capex (408) (476) (326) (321) (230)
47 Net Acquisitions (184) (77) (110) (200) (175)
48 Other Investing cashflows 0 0 0 0 0
49 Investing Cash Flow (592) (552) (436) (521) (405)
50

51 Inc/(Dec) in Borrowings 250 (249) 128 241 113
52 Equity Issued 0 489 0 0 0
53 Dividends Paid (124) (132) (204) (216) (225)
54 Other Financing Cashflows (53) 43 (40) (39) (44)
55 Financing Cash Flow 73 152 (115) (13) (156)
56

57 Net Cash Flow (45) (3) 0 0 0
58

59

Relative recommendation:

Overweight

1

2 Valuation Summary

A$m A$ps
3 Current mkt capitalisation

4,100.43 4.47
4

5 Price Target

6.10
6 Capital growth to price target

36.5%
7

8 Trading Multiples FY17 FY18 FY19E FY20E FY21E
9 PE Pre-abnormals 17.2 14.7 15.3 14.0 13.4
10 PE Reported 14.0 25.5 15.3 14.0 13.4
11 EV/EBITDA 9.7 8.1 7.8 7.9 7.7
12 EV/EBIT 14.3 12.0 11.7 11.3 11.0
13

14 Key Ratios FY17 FY18 FY19E FY20E FY21E
15 Dividend Yield 3.6% 4.6% 5.0% 5.4% 5.6%
16 Franking 25.0% 100.0% 100.0% 100.0% 100.0%
17 Return on Assets (%) 4.5% 5.0% 5.0% 5.2% 5.1%
18 Return on Equity (%) 6.7% 7.3% 7.0% 7.6% 7.7%
19 ROIC (%) - - - - -
20

21 Leverage FY17 FY18 FY19E FY20E FY21E
22 Gearing (Net Debt / Equity) 28.4% 18.8% 21.8% 27.5% 29.8%
23 Gearing (ND / (ND + E)) 22.1% 15.8% 17.9% 21.6% 22.9%
24 Net Debt / EBITDA 180.8% 120.7% 133.5% 164.5% 174.0%
25 EBIT Interest Cover (x) 8.4 11.7 11.0 12.2 11.1
26

27 Balance Sheet FY17 FY18 FY19E FY20E FY21E
28 Cash 114 110 110 110 110
29 Receivables 193 222 231 244 254
30 Investments - - - - -
31 Inventories 12 16 14 15 15
32 Other Current Assets 109 49 49 49 49
33 Total Current Assets 428 396 404 418 428
34 Net PPE 2,361 2,659 2,785 2,915 2,956
35 Total Intangibles 1,852 1,859 1,853 1,844 1,828
36 Other Non Current Assets 375 358 468 668 843
37 Total Non Current Assets 4,588 4,875 5,105 5,427 5,627
38 Total Assets 5,015 5,271 5,509 5,844 6,055
39 Creditors 325 366 412 428 445
40 Current Borrowings 130 134 134 134 134
41 Current Tax Provisions - - - - -
42 Other Current Provisions 67 65 65 65 65
43 Other Current Liabilities 68 25 25 25 25
44 Total Current Liabilities 589 589 635 651 668
45 Non Current Creditors 0 0 0 0 0
46 Non Current Borrowings 915 686 814 1,055 1,168
47 Deferred Tax Liabilities 188 176 176 176 176
48 Other Non Current Provisions 10 13 13 13 13
49 Other Non Current Liabilities 37 25 25 25 25
50 Total Non Current Liabilities 1,150 900 1,029 1,270 1,382
51 Total Liabilities 1,740 1,489 1,663 1,921 2,050
52 Equity 2,581 3,070 3,070 3,070 3,070
53 Other Equity 0 0 (0) (0) 0
54 Reserves (7) (7) (7) (7) (7)
55 Retained Profits 702 718 783 861 941
56 Outside Equity Interests 0 0 0 0 0
57 Total Shareholders Equity 3,276 3,782 3,846 3,924 4,005
58 Net Debt 931 710 838 1,079 1,191
59

Expand
Chart is very weak has made a few attempts to break the $4.60's. Looks like sub $4.00 is near now. Which if the $6.10 target can be achieved great buying is possible near term. I would be confident in SGR if I saw $4.70 taken out.

SGR Price at posting: $4.26 Sentiment: Hold Disclosure: Held

0 Great analysis

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(20min delay)
Last 20.5¢		Change -0.005(2.38%)		Mkt cap ! $1.290B

Open	High	Low	Value	Volume
21.0¢	21.0¢	20.5¢	$193.2K	739.1K

Buyers (Bids)

No.	Vol.	Price($)
49	3550060	20.5¢

Sellers (Offers)

Price($)	Vol.	No.
21.0¢	2878520	36

Last trade - 10.20am 22/11/2024 (20 minute delay)

SGR (ASX) Chart