Star Entertainment warns of up to $1.1 bln earnings hit, shares plumb record low

Sydney's Star Casino complex is seen illuminated at night
Sydney's Star Casino complex is seen illuminated at night, February 15, 2016. REUTERS/Jason Reed/File Photo
  • Star shares hit record low, down ~22%
  • Remediation remains key focus - Star
  • Sees H1 underlying EBITDA in A$195 mln-A$205 mln range
  • Star to report H1 results on Feb. 23

Feb 13 (Reuters) - Australia's Star Entertainment Group (SGR.AX) on Monday warned of an up to A$1.6 billion ($1.11 billion) impairment charge in first-half earnings from a proposed casino duty hike in New South Wales, sending its shares tumbling 22% to a record low.

The warning underlines the possible impact of proposed tax rate hikes on casinos in New South Wales, which has said the proceeds would be redirected to help communities affected by bushfires and floods.

The tax reform, which was announced by Australia's biggest state last December and is likely to come into force in July, poses significant challenges to the profitability of Star's Sydney operations, the group said. Sydney operations made up half of the group's revenue in fiscal 2022.

"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.

Star said it intended to undertake an urgent review of the operating model and assets of its Sydney business if the state government's proposal went ahead.

Shares of the country's second-largest casino operator fell as much as 21.9% to hit an all-time low of A$1.465, while the broader market was slightly weaker.

The tax reform proposal is playing a central role in New South Wales elections scheduled for March 25. The incumbent conservative state government also wants to phase in mandatory cashless poker machines in five years to curb the problem of gambling and money laundering, while the centre-left Labor opposition wants a limited trial of cashless machines only.

The company said it would incur remediation costs of about A$20 million in the six months ended Dec. 31, as it attempted to improve compliance processes to return to licence suitability.

The embattled firm's earnings have dwindled amid a slew of government probes, COVID-19 curbs and three class actions. It reported an annual net loss in August and its share price more than halved in value last year.

Star forecast underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) of A$330 million to A$360 million for the year ending June 30, 2023, compared with the A$237 million reported last year and lower than Factset consensus of A$446 million.

($1 = 1.4482 Australian dollars)

Reporting by Savyata Mishra in Bengaluru; Editing by Paul Simao and Subhranshu Sahu

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