Daily Management Review

Caution of up to $1.1 bln earnings hit issued by Australia’s Star Entertainment


Caution of up to $1.1 bln earnings hit issued by Australia’s Star Entertainment
The first-half earnings from a proposed casino duty hike in New South Wales could be impaired by up to A$1.6 billion ($1.11 billion), according to a warning from Australia's Star Entertainment Group on Monday. This news sent the company's shares tumbling 22% to a record low.
The warning highlights the potential effects of proposed tax rate increases on casinos in New South Wales, where it has been stated that the money raised would be used to aid communities affected by bushfires and floods.
The group claimed that the tax reform, which Australia's largest state announced in December and is anticipated to go into effect in July, will significantly affect the profitability of Star's Sydney operations. In the fiscal year 2022, the group's Sydney operations accounted for half of its revenue.
"The A$400 million to A$1.6 billion range for the non-cash impairment charge to NSW Casino highlights the uncertainty around duty rates for Sydney," Jefferies said in a note.
If the state government's proposal went through, Star said it would conduct an urgent review of the business's assets and operating strategy in Sydney.
While the overall market was slightly weaker, shares of the second-largest casino operator in the nation dropped as much as 21.9% to hit an all-time low of A$1.465.
The 25th of March is election day in New South Wales, and the tax reform proposal is a major issue. To combat the issues of gambling and money laundering, the state's current conservative government also wants to gradually introduce mandatory cashless poker machines over the course of five years, while the center-left Labor opposition only wants a limited cashless machine trial.
For the six months ending December 31, the company estimated that it would spend about $20 million on remediation as it worked to enhance its compliance procedures and regain license suitability.
The troubled company's earnings have decreased as a result of three class actions, three COVID-19 curbs, and a slew of government investigations. It announced an annual net loss in August, and last year, the value of its share price more than halved.
For the fiscal year ending June 30, 2023, Star projected underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) of A$330 million to A$360 million, down from the A$237 million reported the previous year and below the Factset consensus of A$446 million.