Star hits new low as NSW tax jitters send investors fleeing

Casino giant Star Entertainment Group’s shares have plummeted to another record low, shedding over 30 per cent in just two days, as the NSW government’s proposed casino tax increase weighs on the company’s future.

Star’s shares closed over 13 per cent weaker to $1.28, having already slipped 20 per cent on Monday, after it flagged a potential $1.1 billion earnings hit if the state government raises the amount of tax leveraged from casino poker machines, a proposal first raised by Treasurer Matt Kean in December.

The $1.2 billion embattled casino operator has lost more than half of its value over the last six months and its latest update has got market watchers questioning its near-term financial health. The Star was trading at $3.58 a share a year ago.

Analysts at Morningstar have lowered their share price estimate for The Star from $2.80 to $2.70, with analyst Angus Hewitt noting the company lacks an “economic moat” due to its lack of exclusivity in Sydney, its inability to determine the cost of the potential tax change in NSW and the persistent regulatory uncertainty despite promising growth prospects in Queensland.

The Star had until recently enjoyed exclusivity in the Sydney casino market. However, it now faces stiff competition with the opening of Crown Resorts’ $2.2bn Barangaroo resort last August. It has also had its casino licences across NSW and Queensland suspended last year for failing to stem criminal activity and money laundering.

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However, Hewitt said The Star will likely regain its casino licences and said there is some light at the end of the tunnel for the casino operator provided it can ride out the current storm.

“While we think regulatory uncertainty around the New South Wales and Queensland licences means investors should require an additional margin of safety, at current depressed prices, we think Star presents a good opportunity to capitalise on pessimism which has become overblown,” he said.

Meanwhile, Credit Suisse analysts have hinted at the possibility of The Star raising up to $500 million from the market to fix its balance sheet. The move would be the first significant corporate action taken by The Star’s newly minted chief executive Robbie Cooke and its refreshed board.