Analysts at investment bank Macquarie have placed an enterprise value of AU$798 million (US$528 million) on Star Entertainment Group’s troubled flagship The Star Sydney ahead of a potential sale of some or all of the casino operator’s Sydney assets.
Such a sale has been flagged as one of a number of options facing Star after the company revealed last week that it would undergo a strategic review of possible structural alternatives to increase shareholder value in response to plummeting profits.
Although Star will also cut 500 full-time jobs, cancel executive bonuses and freeze the salaries of non-EBA (enterprise bargaining agreement) employees, it has flagged more long-term concerns around a “significant and rapid deterioration in operating conditions” as a result of regulatory actions taken against it in both NSW and Queensland.
A proposed increase in the tax rate The Star Sydney pays on EGM revenues from the current 32% to more than 60% could also put another AU$100 million (US$ 66 million) dent in its coffers.
Barrenjoey Capital Partners has been hired to assist Star with its strategic review of The Star Sydney with local media reports suggesting the company could look at selling The Star Sydney or even separating the casino business from the rest of the integrated resort, among other options.
In response to Star’s revelations about its current business predicament, Macquarie this week downgraded the company’s shares from “outperform” to “neutral” and slapped an estimated AU$798 million price tag on the Sydney resort on a discounted cash-flow basis. The bank described Star’s business update last week as a “surprise” but added any splitting of The Star Sydney’s casino operations from its and non-gaming attractions was unlikely given ongoing earnings uncertainty.
On a brighter note, analysts David Fabris and Lachlan Elliott observed that the NSW state government appeared amenable to relenting on implementation of the full EGM tax increase it had originally proposed, which would likely reduce annual impairment from AU$100 million to AU$75 million (US$50 million). With a further AU$25 million (US$16.5 million) reduction in operating costs, this would see Star out of pocket by AU$50 million (US$33 million) per year under a higher tax rate.
Star Entertainment Group also operates The Star Gold Coast and is due to open its AU$3.6 billion (US$2.38 billion) Queen’s Wharf Brisbane development towards the end of this year.
The company’s Australian rival Crown Resorts – operator of Crown Melbourne, Crown Perth and the recently opened Crown Sydney – was last year bought out by American private equity giant The Blackstone Group in a AU$8.9 billion (US$6.5 billion) deal.
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