In morning trade the Star Entertainment Group Ltd (ASX: SGR) share price has crashed 7.5% to $6.05 following the release of the casino and resort operator's half-year results.
Key takeaways from today's result include:
- Normalised gross revenue rose 15.9% on the prior corresponding period to $1,360 million.
- Normalised earnings before interest, tax, depreciation, and amortisation (EBITDA) increased 11.8% to $180 million.
- Normalised net profit after tax was 12.4% higher at $120 million.
- Statutory net profit after tax fell 76.8% to $33 million due to low VIP win rate and significant items from USPP debt restructuring costs.
- VIP win rate of 1.06% compared to 1.62% in the prior corresponding period.
- Interim dividend per share of 7.5 cents fully franked.
- Earnings per share of 4 cents.
- Outlook: Queensland performing well, but Sydney has been softer than expected in the second-half.
All in all, I felt this was a bit of a mixed first-half for Star Entertainment and can't say I'm surprised to see its shares drift lower.
According to the release, during the half its Queensland domestic revenue rose $27.7 million, Sydney domestic revenue increased $23.5 million, and International VIP revenue jumped a massive $135 million. This was a 8.7%, 4%, and 47.7% increase, respectively, on the prior corresponding period.
Strong visitation levels and average spends across the entirety of its business were the main drivers of this growth.
Unfortunately, though, a low VIP win rate means that this increase in revenue didn't flow to the bottom line.
Like rivals Crown Resorts Ltd (ASX: CWN) and SKYCITY Entertainment Group Limited (ASX: SKC), Star Entertainment has a theoretical win rate that it bases its normalised results on. This 1.35% win rate is used to reflect the underlying performance of the business as it removes the inherent win rate volatility, as seen in today's result.
A win rate of 1.06% is really quite low and a big disappointment for shareholders. Especially when SKYCITY Entertainment enjoyed a win rate of 1.55% during its first-half.
But at the end of the day, a company can only be valued on the profit it actually produces and not a theoretical normalised profit. Which in Star Entertainment's case was a paltry 4 cents per share, meaning its shares are changing hands at a lofty 30x trailing earnings.
Given its outlook, low win rate, and high earnings multiple, I think investors should resist taking a punt on Star Entertainment and look elsewhere in the market instead.
