The Motley Fool

Should you buy Star Entertainment Group Ltd (ASX:SGR) shares after its solid results?

The Star Entertainment Group Ltd (ASX: SGR) share price has been a strong performer on Friday.

In early afternoon trade the casino and resort operator’s shares are up almost 6% to $5.29 following the release of its full year results.

For the 12 months ended June 30, Star Entertainment posted a 5.5% increase in revenue to $2,472 million and a 44% decline in statutory profit after tax to $148 million. On a normalised basis profit after tax came in 20.3% higher year on year at $258.1 million.

For those that aren’t familiar with the way that the likes of Star Entertainment, Crown Resorts Ltd (ASX: CWN), and SKYCITY Entertainment Group Limited (ASX: SKC) report their earnings, they adjust their results using an average win rate to account for the volatility of their VIP Rebate business.

Star Entertainment uses an average win rate of 1.35% for its normalised result, whereas the actual win rate in FY 2018 was just 1.16%. This compares to a win rate of 1.59% a year earlier, which helped inflate the statutory results in FY 2017.

Diluted earnings per share came in at 17.5 cents, down from 31.9 cents in FY 2017. Despite this decline, the board’s confidence in the business meant it grew its dividend by 28.1% this year to a total of 20.5 cents per share. This means the company paid out 122% of its statutory profits.

A strong performance from the company’s Sydney segment was largely behind the solid normalised result. It delivered a 17.5% increase in gross revenue to $1,875 million and a 27.9% increase in EBITDA to $410 million. Drivers included an 11.4% increase in visitation, a growing share of the slots market, and a 56.7% increase in VIP turnover.

This helped to offset a soft result in Queensland where normalised gross revenue rose 10.5% to $820 million but EBITDA dropped 8.4% to $178 million. A significant increase in operating costs offset its revenue growth. However, cost management initiatives are ongoing to address this issue.

Outlook.

Management advised that Star Entertainment has had a positive start to FY 2019 and broad-based revenue growth has been seen across the company.

Furthermore, improvements in domestic revenue growth trends from FY 2018 have flowed into FY 2019, including strong Sydney PGR Table performance. VIP play has also started positively.

Should you invest?

I thought this was a solid result and I’m not surprised to see its shares rise today. Things certainly look positive for the casino and resort industry right now, which could make Star Entertainment worth considering. Though my preference remains Crown Resorts due to its portfolio and growth plans.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. The Motley Fool Australia has recommended Sky City Entertainment Group Ltd. 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 Scott Phillips.

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