How much is Star’s Sydney casino worth? Just $8m, says Barrenjoey

Star Entertainment’s flagship Sydney operation could be worth just $8 million, according to an analysis by Barrenjoey Capital Partners, the investment bank once engaged by the troubled casino group to sell the complex.

In a note to his clients, Barrenjoey broker Matt Ryan said the company’s hotel business alone – it has properties in Sydney, Brisbane and Gold Coast – could be worth more than $1 billion. That was without other assets including convention centres, entertainment venues and restaurants.

But Star’s accounts showed “the significant challenges that the company faces from an earnings, liquidity and balance sheet perspective,” he said.

New restrictions on poker machine gaming and a dearth of international high-rollers have hit revenues while Star faces far higher compliance costs after several damning regulatory findings into its conduct. It is also struggling to repay large debts.

Star’s new chief executive, Steve McCann, outlined a plan last week to cut 300 jobs in an attempt to save $100 million by March as he works to save the business from collapsing. Star’s accounts show a $1.7 billion loss for the 12 months to June 30, largely driven by a $1.4 billion write-down of its casinos. That has taken the loss in value over two years to $4.5 billion.

A big part of Star’s write-down – $819 million – related to its Brisbane properties, including the company’s new Queen’s Wharf complex. A further $337 million was wiped off the Sydney casino. Last year, Star slashed $1.6 billion from the value of its Sydney flagship operation.

Although gaming is at the core of Star’s operations, the company will have 2714 hotel rooms and 108 restaurants and cafés when its latest casino, Brisbane’s Queen’s Wharf, is fully open. The complex, which it owns with Hong Kong’s Chow Tai Fook and Far East Consortium, has partly opened.

Huge debts

But the company has significant debts. Its shares were suspended from the ASX for almost a month as it struggled to secure $200 million in funds, and the lenders finally agreed to the new debt and to waive covenants.

At the time, one of the company’s biggest lenders, Soul Patts, said Star was at risk of not being able to meet its debt repayments but its assets were “very valuable … high-quality pieces of infrastructure”.

Barrenjoey’s Mr Ryan expects Star to post losses for years despite Mr McCann’s turnaround plans, and the broker has cut his revenue forecasts for the next year by 20 per cent and his earnings expectations by more than 80 per cent.

He said the Sydney operation was worth $8 million, and the Gold Coast property was valued at $386 million. Queen’s Wharf was worth $1 billion. After debt was accounted for, Star had an equity value of $790 million, he added.

Star’s shares have halved since the start of the year, and are trading at 27¢, giving the company a market capitalisation of $762 million.

David Fabris, a broker at Macquarie, said he expected Star to continue to cut costs, including finding another $100 million in savings next year. He also said the company would have to contribute another $360 million to the Queen’s Wharf complex by 2027, further straining its finances.

“There may be asset sales beyond the $300 million that has been identified, and of which have minimal earnings contributions,” he said. “This suggests that everything is for sale, at a fair and reasonable price.”

Star will also face a fine from AUSTRAC, the financial crimes regulator, which has alleged serious and systemic breaches of anti-money laundering laws for years, and punishment from the NSW regulator after an investigation this year made a damning assessment of its management.