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Why the Star Entertainment share price crashed 16% to a multi-year low today

The worst performer on the S&P/ASX 200 index this morning by some distance has been the Star Entertainment Group Ltd (ASX: SGR) share price.

At the time of writing the casino and resorts operator’s shares are down over 16% to a multi-year low of $3.77.

Why has the Star Entertainment share price crashed lower today?

Investors have been heading to the exits in their droves this morning following the release of a trading update.

According to the release, domestic revenue growth trends across its Star properties have softened since the release of its half year results.

The slowdown reflects a combination of more challenging macroeconomic conditions across its markets, lower hold rates on tables games in private gaming rooms, and the impact of disruption from capital works at The Star Sydney.

This has led to domestic revenue between January 1 and June 8 increasing just 0.3% on the prior corresponding period, meaning total domestic revenue in FY 2019 year to date is now up 3.1% on the prior corresponding period.

In addition to this, the company warned that International VIP trends from the first half have continued in the second half. International VIP turnover is down 31.1% in the second half as of June 8.

This has been caused by a sharp decline in front money, a decline in turns, and a lower win rate, which have offset a 7.6% increase in unique patrons.

In light of this, management expects the company to deliver normalised EBITDA in the range of $550 million to $560 million in FY 2019. This compares to $568 million in FY 2018 and is subject to end of year finalisation processes and an external audit.

One positive, though, is that cost management initiatives are expected to deliver meaningful cost savings. The company revealed that it is targeting a $40 million to $50 million per annum cost savings run rate by the end of the first quarter of FY 2020.

Unsurprisingly, this news has had a negative impact on the rest of the industry. In late morning trade the shares of both Crown Resorts Ltd (ASX: CWN) and SKYCITY Entertainment Group Limited (ASX: SKC) have dropped into the red.

Finally, it is worth noting that Star Entertainment’s CEO and managing director, Matt Bekier, offloaded 200,000 shares through an on-market trade at the end of April for an average of ~$4.57 per share. This could be yet another example of why insider selling is worth keeping an eye out for.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Crown Resorts Limited and 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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