Why did the Star Casino share price just dive 19% to an all-time low?

There's a fault in the Star share price on Monday…

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Key points

  • Investors are folding their Star investments today
  • The casino operator's shares have crashed to a record low
  • Tough trading conditions are weighing heavily on its performance

The Star Entertainment Group Ltd (ASX: SGR) share price is having a day to forget.

In morning trade, the casino operator's shares are down a massive 19% to $1.52.

This means the Star share price is down approximately 60% over the last 12 months.

Why is the Star share price crashing?

Investors have been selling down the Star share price on Monday after the company released a very disappointing earnings and guidance update.

According to the release, the company's first half earnings have been impacted by operational changes arising from the Bell and Gotterson Reviews, a step-up in remediation costs, and increased competition in Sydney from Crown Sydney.

First half revenue grew 30% on pre-COVID levels for The Star Gold Coast and 9% for Treasury Brisbane, but fell 13.5% for The Star Sydney. This led to overall group revenue falling 1% on pre-COVID levels.

In respect to its ongoing remediation actions, Star revealed that it has continued to invest in improved compliance capabilities and incurred remediation costs of ~$20 million during the half. This includes a significant increase in headcount including the use of 'surge' third party consultants to improve compliance processes as it seeks to return to licence suitability.

In light of this, Star expects to report underlying EBITDA of $195 million to $205 million during the first half. Though, it is worth noting that this excludes provisions for fines and one-off legal costs which will be treated as significant items.

Full year guidance

Unfortunately, things aren't expected to get any easier in the second half. In fact, its second half profits are expected to be softer half on half.

This is expected to lead to full year underlying EBITDA of $330 million to $360 million. This is based on the assumption that market conditions and the regulatory environment do not materially change.

Non-cash impairment

Star also revealed that it is writing down the value of its Sydney business due to operational changes implemented following the Bell Review, amendments to the NSW Casino Control Act, and the potential for an increase in NSW casino duty rates from FY 2024.

Management is anticipating a non-cash impairment charge in the range of $400 million to $1.6 billion in its half year results.

It notes that the high end of this range is based on the implementation of NSW casino duty rate increases as proposed by the NSW Government, whereas the low end of the range assumes no change in NSW casino duty rates.

Management commentary

Star's CEO and Managing Director, Robbie Cooke, commented:

We have been pleased with the ongoing strength of trading across our Queensland based properties, while trading at The Star Sydney has been impacted by operational changes associated with the outcome of the Bell Review as well as competition from Crown Sydney

Whilst the outcome of recent regulatory and legislative developments remains uncertain, we have taken a prudent approach to assessing the carrying value of our assets, which has resulted in a non-cash impairment charge which will be recognised in our 1H FY23 results.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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