Star Entertainment Group Ltd (ASX: SGR) is holding its AGM and gave a FY21 Q1 update. Could it be COVID-19 turnaround play?
AGM update
The casino business gave an update for the period from 1 July 2020 to 15 October 2020.
The CEO said that performance has been pleasing, with group domestic gaming revenue approximately 75% of the prior corresponding period (pcp) and group domestic revenue approximately 70% of the pcp, which was on reduced capacity of all properties.
The Queensland properties have traded “strongly” with domestic gaming revenue broadly in line with the pcp, despite the COVID-19 distancing requirements and reduced trading hours that are currently in place.
However, Sydney Star continues to be impacted by stricter COVID-19 restrictions, including a cap on the number of people in an area and no co-mingling between areas.
The VIP rebate business continues to be impacted by the closure of international and domestic borders, so there was very little turnover in the first few months of FY21.
Star has been managing its spending because of the difficult operating conditions. Domestic EBITDA (click here to learn what EBITDA) margins where higher than last year despite lower revenues. This has helped “strong cashflow generation” in the period and helped Star with “significant debt reduction”. Star aims to continue to reduce debt.
Are Star shares a COVID-10 turnaround play?
The casino business is looking to refocus on local markets and domestic tourism whilst keeping costs low.
I think Star could be an interesting idea as people get more comfortable going to entertainment venues again with COVID-19 cases being so low across the states that Star operates.
It is still seeing a good level of activity and earnings.
The construction of Crown Sydney by Crown Resorts Ltd (ASX: CWN) complicates the longer term outlook for Star, though Queensland can be a solid earner for Star whatever happens.
Star may be a shorter-term buying opportunity today, but I don’t think it will be able to generate the solid returns that ASX growth shares may be able to generate such as Pushpay Holdings Ltd (ASX: PPH).
