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Why Are Star Entertainment (ASX:SGR) Shares Sinking?

The Star Entertainment Group Ltd (ASX: SGR) share price was down 15% yesterday following a trading update which was released to the ASX in the morning.

Star Entertainment is one of Australia’s largest gaming and entertainment groups and owns and operates The Star casino in Sydney, The Star on the Gold Coast and Treasury in Brisbane.

They also acquired the Sheraton Grand Mirage on the Gold Coast in a joint venture and they manage the Gold Coast Convention and Exhibition Centre on behalf of the Queensland Government.

In late 2015 the company name changed from Echo Entertainment Group to The Star Entertainment Group as part of a transition to a single brand architecture across the group.

Trading Update

In yesterday’s update, the company warned that FY19 earnings will be lower than FY18 earnings, reflecting challenging economic conditions and disruption from renovations.

Star said normalised FY19 EBITDA is expected to be between $550 and $560 million, down from the $568 million in EBITDA recorded in FY18. Star said domestic revenue growth softened in the fiscal second half, with domestic revenue up just 0.3% between 1 January 2019 and 8 June 2019.

Total domestic revenue in FY19 is up 3.1% so far, however they have experienced continued weakness in the international VIP business, with turnover down 31% so far in the second half.

The company said “slowing of domestic growth in the second half reflects a combination of more challenging macro-economic conditions across our markets, lower hold rates on tables games in private gaming rooms (PGRs) and the impact of disruption from capital works at The Star Sydney.”

The company added that certain cost-management initiatives had been brought forward, which should save $40 to $50 million per year. It also said major capital works, including a new casino complex at Queen’s Wharf in Brisbane, were on track.


Competition is coming for Star, with rival Crown Resorts Ltd (ASX: CWN) due to open in Barangaroo in a couple of years. Personally, the constant cost of redevelopment and renovation keeps me on the investing sidelines with both these shares, even though both businesses should benefit from increasing tourism in the years to come.

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Disclosure: At the time of writing, David does not have a financial interest in any of the companies mentioned.

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