ASX gambling shares are feeling the pinch as lockdown grinds on. With venues shuttered revenues have dried up, putting pressure on liquidity. The closure of casinos and pokie clubs in March resulted in the shuttering of some 5,000 gambling venues. Around 194,000 pokie machines now lie idle.
According to one report, pokie operators could lose $7.5 billion in revenue if the shutdown lasts for six months. We take a look at how 3 ASX gambling shares are coping in lockdown.
Star Entertainment Group Ltd (ASX: SGR)
Shares in the casino operator have tracked up from a March low of $1.62 and are now trading at $2.25, although its properties remain shuttered. Star has advised that the shutdown continues to have a material impact on its business.
The company is focused on minimising the impact of the shutdown and conserving liquidity. CEO Matt Bekier said, “The Star is implementing necessary and wide-ranging measures to strengthen the balance sheet and preserve liquidity in the current exceptional circumstances.”
Shutdown cash requirements
Star estimates it will require $220 million under a 3-month shutdown (to 30 June) and $320 million under a 6-month shutdown (to 30 September). These estimates include operating expenses, employee leave entitlements, payables and receivables, interest and capital expenditure payments.
From April until restrictions start to lift, monthly operating expenses are estimated to be ~$10 million, including payments to non-stood down employees, asset security, technology, and other fixed costs.
Debt funding bolstered
To strengthen the company’s liquidity position, Star has entered into a 12 month $200 million debt funding facility. With the new facility, Star has cash and undrawn debt facilities of ~$700 million. Star has also secured a waiver from existing debt providers of its gearing and interest cover covenants at the next testing date of 30 June.
The closure of its casinos prompted Star to defer its dividend. As a condition of the waiver of its covenants by lenders, it will not be permitted to pay cash dividends until gearing levels are below 2.5 times.
Operating costs slashed
In response to the closure of its properties, Star stood down some ~8,500 staff, including the termination of casuals and contractors. Non-executive director fees have been reduced by 50% and the CEO’s salary reduced by 40%.
Star has applied to access the JobKeeper payment program, which is expected to result in the business receiving a wage subsidy of $1,500 per fortnight per eligible employee.
Capital expenditure downsized
Star has cut FY20 capital expenditure by $25 million, a reduction from the ~$250 million guided at the 1HFY20 results. FY21 capital expenditure is expected to be significantly below the ~$175 million previously guided. The actual figure, however, will depend on the timing of property reopenings and the speed of recovery in the trading environment.
Insurance claim lodged
Star has lodged a claim under its business interruption insurance policy in relation to the shutdown and is working through the claims process. Proceeds could provide some relief for the company as it approaches 1 month since the shutdown commenced.
Crown Resorts Ltd (ASX: CWN)
Crown saw the cessation of gaming activities and non-essential services at its Melbourne and Perth properties on 23 March. As a result, it has stood down employees and secured additional funding, and now says it is well placed to withstand an extended period of closure.
Employees stood down
Crown has stood down some 11,500 employees, comprising around 95% of its workforce. Only employees in business-critical functions remain working. The CEO and senior management have taken a 20% reduction in fixed remuneration until 30 June.
Crown has provided stood-down employees with an ex gratia payment of 2 weeks’ pay. They can also draw on existing leave entitlements. Eligible casual workers have been given a lump sum payment of $1,000. Crown has also registered for the JobKeeper payment.
While gaming and other non-essential business activities remain suspended, Crown expects its underlying operating cash costs to reduce to $20 million to $30 million per month.
Additional debt funding
Crown has entered new bilateral facilities with relationship banks for a total of $560 million. Crown currently has a cash balance of $500 million, and the ability to secure over $1 billion in additional debt facilities. The casino operator says this gives it a strong financial position in the current period of economic and social disruption.
Crown will be paying its FY20 interim dividend on 17 April.
Crown intends to continue construction of Crown Sydney as planned. Completion of the Crown Sydney Hotel Resort remains on track for the end of the year. Project costs remain unchanged at $1.4 billion on a net basis. Terms have been agreed with 3 banks in relation to a $450 million project finance facility to support construction.
Tabcorp Holdings Limited (ASX: TAH)
Tabcorp was also impacted by the closure of licensed venues in March. The cancellation of many sporting events around the world has also impacted the wagering business.
Tabcorp is seeking to mitigate the impacts of coronavirus on its business by reducing operating and capital expenditure.
Employees stood down
The company has temporarily stood down over 700 employees until 30 June, with affected employees able to access accrued leave benefits. Full-time employees are taking at least one day of leave per week until 30 June. The number of technology contractors has been reduced by around 40%.
Tabcorp’s CEO has taken a 20% reduction in fixed remuneration. Director fees have been reduced by another 10% following a 10% reduction that took effect in September 2019. Tabcorp is also looking into its eligibility for the JobKeeper wage subsidy.
A thorough review of Tabcorp’s capital expenditure program has been undertaken. Business as usual capital expenditure in 2HFY20 is now expected to be ~$120 million, down from the previous estimate of ~$160 million.
Liquidity is being supported by the deferment of state payroll, lotteries, and Keno taxes for the 6 month period from April 2020. Historically, these taxes have typically amounted to over $40 million per month.
Tabcorp has reportedly also asked its commercial landlords for a 6-month suspension of rent from 1 April to 30 September. If such rental relief is granted, it could save the company up to $20 million.
Additional debt funding
In late March, Tabcorp entered an additional short-term debt facility of $226 million, payable in July 2021. As at early April, the company had undrawn facilities of $100 million and unrestricted cash of $649 million. A US private placement of $171.5 million matures in December.
ASX gambling shares are betting on containing costs while the lockdown continues. The ultimate impact of this approach will depend on the duration of the lockdown and pace of an eventual recovery.
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Motley Fool contributor Kate O'Brien 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 Scott Phillips.
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