News: SGR Star Entertainment expects hit from New South Wales casino tax reform, page-164

All SGR has to do now is survive. Then it’s likely a bargain at the current share price.

Market cap is now not much more than a billion. Underlying profit, even after the new tax rate kicks in, is still in the hundreds of millions. QLD assets are tier one quality and will add to those profits.

However awful the new tax rates prove to be, they are still a tax on profits. It’s not as if Star is losing money operationally. A casino license is still basically a license to print money.

On the other hand, the company is facing a short term cash crunch. Debt is significant, interest rates are rising and immediate profits are being consumed by fines. Longer term profits are being reduced by government tax and regulation.

The market understandably fears a capital raise. I believe it will come to either that, or an asset sell off. Maybe even the Sydney casino itself.

But one way or another, they will find a path forward to get their balance sheet in order and survive. A core profitable business will endure. In five years time, the business (in whatever form and mix it ultimately morphs into) should be doing quite well and all the current issues will be behind it.

I believe it’s oversold. Still, I’m not keen to add until the dust settles, the CR uncertainty is resolved, and it’s clearer what solution the company elects to proceed with. But I am very confident they will find a way, as the basic business and associated assets are so good, it can’t help but make good money once normal times return.

I’m monitoring this with a view to the possibility of substantially adding to my holding a bit later on. When folks are rushing to sell a business with quality long term assets, they should be obliged, however dire the short term outlook.