The Star Entertainment Group Ltd (SGR), the owner of Star Casino Sydney, Melbourne and Brisbane, has seen its share price take a dive due to the potential increase in NSW state gaming taxes and increased competition from Crown Casino.

The share price of Star Entertainment has fallen significantly in the past days. From hovering under $2 per share, to today’s close of $1.30.

The drivers of the fall in share price can be explained as follows:

Sydney Casino

Whilst Brisbane has been holding ground, its Sydney casino has experienced a fall in gambling turnover of 14 per cent year on year. To add further strain to profits, the New South Wales government is considering increasing taxes on gaming revenue. Discussions between Star and the State continue to develop, with the hope that tax increases will not be as damaging as projected by investment analysts.

With the looming state election coming in March 2023, the incumbent Liberal party is determined to stamp its authority in clipping the wings of gambling organisations. Its pokies cashless policy reform is front and centre of its election platform, contrasted with a softer stance by the Labor opposition.

Compliance Costs

A raft of operational process changes are required to meet the required controls from outcomes of investigations by the government. These changes to processes are estimated to be in the hundreds of millions of dollars (possibly hitting past the low billions).

These costs represent a material hit to the bottom line and are not considered one off costs.

Summary

Half year disclosure of $195 million to $205 million and full fiscal year projections range between $330 million to $360 million. The double whammy of competition and expenses is driving the share price lower.