Bargain basement: Could Star’s Sydney casino be worth only $8 million?

The value of Star Entertainment’s flagship harbourside Sydney casino has a certain supermarket down-down pricing feel about it. The “before” price was hundreds of millions and now one leading analyst from Barrenjoey Capital says it’s worth as little as $8 million.

That’s more confusing than misleading. Eighteen months ago, a different but equally qualified analyst had ascribed the Sydney casino an enterprise value of $800 million, which demonstrates just how far its fortunes have fallen.

The Star in Sydney’s Pyrmont – the group’s white elephant. Credit: Bloomberg

It’s like sticker shock in reverse.

For context, the casino is worth less than its chief executive Steve McCann’s first-year pay cheque of $10 million, based on the report authored by Barrenjoey’s Matt Ryan.

The Star property, with acres of betting tables, theatres, restaurants and facilities, has the same value as a decent-sized renovated Paddington terrace.

The paltry valuation Barrenjoey places on the Sydney casino is unsurprising given it reflects a forecast that it will produce a loss of $59 million in the current financial year, followed by a loss of $25 million next year.

The Star Entertainment Group recently reported its delayed earnings report for the 2024 financial year in which it told investors that the first couple of months of the 2025 year it is operating at a loss.

The largest negative contribution to this appears to be the Sydney casino, which according to Barrenjoey lost $8 million in July and $6 million in August before tax, interest, depreciation and amortisation.

It comes on the back of Star’s 2024 accounts that show a $1.7 billion loss for the 12 months to June 30, largely driven by a $1.4 billion write-down of its casinos.

The good news is that Star Entertainment’s various hotels could have a combined value of $1 billion, and its Gold Coast and Brisbane properties are worth much more than its Sydney casino.

For shareholders, taking a bet on Star has been like catching a falling knife.

But placing any kind of valuation on Star Entertainment or its Sydney property is a hazardous affair.

The company’s fortunes have been in freefall for four years.

When Macquarie penned that valuation 18 months ago, Star’s share price was sitting at around $1.20. Today its shares closed at 26¢.

In the heady days of 2020, before various damning inquiries on Star’s conduct placed its licences in regulatory purgatory, the share price sat at $4. That was also before Crown Sydney opened its doors, which ushered competition in the Sydney market.

It was also before the effects of the evaporation of the Asian high-roller market had become clear. And the cost of living crisis has inflicted a particular toll on all casinos over the past 18 months.

For shareholders, taking a bet on Star has been like catching a falling knife.

The fortunes of the group, and in particular the Sydney casino, now appear to be dictated by a group of bankers that are extracting their pound of flesh by lending to Star at exorbitant interest rates and with plenty of influence over the group’s strategy.

The Star’s CEO, Steve McCann.Credit:

Even if, or when, Star gets a tick and is found to be suitable to hold casino licences, its financial challenges remain.

The costs of rehabilitation run into the hundreds of millions, as do the fines and potential legal settlement of the current class action.

The shape of this company will continue to change in the near to medium term, thanks to asset sales that have been forced on them to combat the current liquidity crisis.

The effects of new regulation, such as cashless betting across NSW and Queensland, won’t be fully understood until it is implemented across both states.

Attempting to value Star Entertainment, which is desperately attempting to cut $100 million in costs by early next year, is akin to a crap shoot.

While a valuation on Sydney of $8 million sounds extreme, it may not be so far from the pin.

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