Why Star Entertainment looks like a safe bet

The Star Entertainment Group Ltd (ASX: SGR) share price has shed about 3 per cent since December with its shares now trading for about $5.93.

But there are a signs the Star Entertainment share price could pick up.

The entertainment company, with a market value of about $4.9 billion, operates casinos and hotels, including The Star Sydney, the Treasury Hotel and Casino in Brisbane and The Star Gold Coast.

For financial year (FY) 2017 Star Entertainment reported a statutory net profit after tax of $264.4 million, up 36 per cent on the previous year.

That followed FY 2016’s net profit of $194 million, an increase of 15 per cent on FY 2015’s result.

As such, Star Entertainment has increased its dividend over the past few years, paying shareholders a fully franked dividend per share of 16 cents in FY 2017, up 3 cents on the prior corresponding period.

At its current share price that works out to a trailing yield of about 2.7 per cent.

While Star Entertainment’s dividend appears meagre when stacked up against other companies, the company’s share price has gained almost 20 per cent over the past year and it seems it could keep climbing.

Star Entertainment’s fortunes are supported by Chinese tourists who have demonstrated an appetite for Star’s entertainment facilities.

About 1.33 million Chinese tourists visited Australia last year, pumping about $3.2 billion into the New South Wales economy alone, according to News Corp (ASX: NWS).

Star Entertainment has told shareholders that it’s expecting visitors from China to rise with around 3 million Chinese tourists predicted for 2026 and the company is hopeful they will continue to visit its casinos and hotels.

And some of them will have more opportunities to spend their money at Star Entertainment properties.

The company announced last month that the Queensland Government approved plans for a key stage of the $3-billion Queen’s Wharf Brisbane precinct project of which Star has a major stake.

The project is expected to be operational in 2022.

Star Entertainment’s shares, which change hands for about 18 times trailing earnings, may appear expensive when compared to Crown Resorts Ltd (ASX: CWN) which sees its share trade for about 5 times earnings.

But Star Entertainment’s business looks to be in better shape than Crown Resorts which has suffered from scandals and the threat of a class action.

However, some analysts are tipping both Crown Resorts and Star Entertainment to do well in 2018.

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Motley Fool contributor Steve Holland has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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