Sydney Star Casino only worth $8 million?

Hey Superheroes,

Markets look to have retreated slightly this week after last week’s bull run triggered by China’s massive stimulus package.

Wall Street saw some big headlines with Microsoft and Nvidia among those that joined in OpenAI’s US$6.6B capital raise. Meanwhile Tesla saw its stock fall after recalling 27,000 Cybertrucks due to a camera issue.

Despite this, Elon Musk remains the world’s richest man while Jeff Bezos was dethroned by Mark Zuckerberg for the #2 spot just last night. Meta recorded a new all-time high and is now up over 93% for the year after all.

Let’s shine this week’s Spotlight on a name known to every Aussie: The Star.

The Star Casino writes off and continues writing off

After a month-long trading halt due to delays in releasing its annual report, the Star is finally back alive on the market. Or well, perhaps that’s debatable… given that it posted a ~A$1.55 billion loss in FY24 and saw its shares tumble by over 40%.

What happened?

📝 Over $3.6 billion in write offs

Over 90% of the Star’s net loss came from impairment and depreciation expenses.

To those unfamiliar, companies are generally required to record assets on their balance sheets at fair or market value. Citing new regulatory requirements, loss of market share and deteriorating operating conditions, the Star decided to adjust the value of its businesses down to better reflect what they’re worth.

Overall, it wrote off a total of A$1.43 billion – A$337M from its Sydney operations, A$274M from Gold Coast and A$819M from Brisbane.

This came after the casino giant already wrote off nearly A$2.2 billion from its assets in FY23, bringing its total write offs to a value of over A$3.6 billion in just two years.

🤔 So… is that good or bad?

While the above may be confusing, here are some key facts about the Star and its write offs:

• The Star has written off so much that it has impaired “Goodwill” from A$1.27B in FY2022 to now be $0;
• The Star has depreciated its properties, plant and equipment so much that all of them combined are worth just A$1.15B on paper (from A$4.39B). Yup that includes its three properties in NSW and QLD;
• Write offs generally tend to be one-off or non-recurring losses.

And while the Star posted massive overall net losses for two consecutive years, it actually recorded a normalised net profit after tax (i.e. excludes one-off expenses) of A$11.9 million.

🚨 Gambling limits enforced

Despite all that it may be too early for the Star to breathe a sigh of relief.

For one, NSW regulators are now enforcing mandatory carded play (i.e. pokies will no longer take cash) and with a max limit of $5,000 a day per patron. By August next year, this limit will go down to $1,000 a day.

This limit is expected to impact the Star’s operations, with one analyst even valuing the Star Sydney’s operations at just A$8 million. Carded play has not yet been enforced in QLD.

🔮 The future for the Star

The Star’s auditors also raised concerns on its liquidity. Fortunately for the casino giant, it was able to secure a A$200 million debt lifeline from lenders.

The Star’s market cap currently sits at ~A$760M, a far cry from the A$8B it recorded just two years ago. We’ll have to wait and see whether it can get back its former glory.

🔦 Some other things we’re shining the Spotlight on:

• NO MORE CAR LOANS: Westpac is set to sell its auto finance loan book to Resimac Group for around A$1.4 to A$1.6 billion next year. The sale will see Westpac divest completely from its auto finance business, which it partially sold in 2021.
• NIKE DIDN’T DO IT: Nike shares are down over 8% this week after the shoe giant reported 10% lower sales year-on-year, plus expectations of an 8-10% revenue fall next quarter. Nike is awaiting its new CEO, Elliott Hill, who will be joining the company on 14 October 2024.
• MAKING PEACE: Sigma Healthcare is up over 40% this week after offering franchisees a way out of the group if it merges with Chemist Warehouse. By doing so, it may be able to complete the merger without the ACCC forcing it to sell stores.

The latest U.S. inflation data and the RBNZ’s cash rate decision are set to be published next week.

Keep up to date on the markets by following us on Instagram, @superheroau!