Star Sydney could be worth only $8m, says Barrenjoey analyst
Star Entertainment’s Sydney casino has emerged as a laggard in the troubled company’s property portfolio with one estimate putting its valuation as low as $8m.
Star Entertainment’s Sydney casino has emerged as a laggard in the troubled company’s property portfolio, with one estimate putting its valuation as low as $8m.
Barrenjoey gaming analyst Matt Ryan in a report to clients said Star continued to face significant challenges from an earnings, liquidity and balance sheet perspective, warranting a cut in its rating to neutral and a reduction in its share price target to 30c from 65c.
The shares closed at 28c on Wednesday, down 48 per cent so far this year.
“While we recognise that sales of the assets in the business could be worth significantly more, uncertainty in the near term outlook results in a change to our rating,” Mr Ryan said.
Star chief executive Steve McCann and chief financial officer Neale O’Connell are meeting sell-side analysts this week to promote the beleaguered casino operator’s $200m financial rescue package announced last week. Any share price recovery is likely to remain fragile after Star was hit with analyst downgrades following last week’s debt deal and revelations about ongoing liquidity challenges.
Star reported 2024 losses of $1.69bn after $2.44bn in red ink in the prior corresponding period, as it continued to battle regulatory costs and challenging trading conditions.
Mr McCann is looking to slash up to 350 jobs and offload hotels and other assets after warning the company was “on its knees”.
Mr Ryan said Star holds a portfolio of premium properties that could be purchased or re-purposed to create more value. After the completion of Queen’s Wharf in Brisbane, the company would have 2714 hotel rooms and 108 food and beverage venues over 23 hectares of land.
“While it is difficult to value certain assets such as convention centres and restaurants, hotel rooms are more transparent,” Mr Ryan said. “A valuation for Star’s share of hotels could easily exceed $1bn, with a higher range depending on arrangements around room comps and market conditions.”
While putting a valuation of $1.05bn on Queen’s Wharf, including its 50 per cent share in the Destination Brisbane Consortium (DBC) and management fees, Mr Ryan said the Sydney casino was only valued at $8m. He said key risks for the company going forward included further delays or escalation of costs related to Queen’s Wharf, uncertainty around asset sales, a slower than expected recovery in consumer visitation and further fines or penalties related to litigation.
Star Entertainment’s auditors on Monday raised a series of red flags about its ability to continue as a going concern with expenses related to the new Queen’s Wharf casino precinct a key concern.
Star in its annual report released on Monday warned earnings uncertainty arising from loss of market share, financial crime remediation and the impact of casino operating reforms cast significant doubt on the group’s ability to continue in business. The phased opening of the $3.6bn Queen’s Wharf project, which had faced cost overruns and delays, also would continue to dog the company. Auditors Ernst & Young said these issues and others added up to material uncertainties about the company’s future.
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