Stock of the day: Star Entertainment Group
Star Entertainment Group is dealing with significant financial challenges, including liquidity issues, regulatory risks, and declining casino earnings. ESG issues push investors away from casino stocks.
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This video was created on 5 September for IG audiences by ausbiz.
Stock of the day: Star Entertainment Group (ASX:SGR)
Significant financial and ethical challenges
The Star Entertainment Group is under immense pressure due to liquidity issues, regulatory risks, and declining core casino earnings. The panel unanimously suggests against investing in the stock, citing concerns such as environmental, social, and governance (ESG) issues, poor performance, and potential capital requirements as compliance costs rise.
Declining stock performance and capital concerns
Star Entertainment has faced ongoing struggles, with its shares down 88% over the past five years. The company, which operates casinos in Sydney, Brisbane, and the Gold Coast, is currently in a trading halt while it reviews its financial and liquidity position with advisors. Adding to the uncertainty, the company has yet to release its FY24 results.
In its February half-year results, Star Entertainment revealed a projected cost blowout of $220 million, contributing to a significant decline in its share price - down more than 50% over the year to the end of August. The company is now negotiating with lenders due to weaker casino activity and funding shortfalls.
Broader casino industry challenges
While casinos have the potential to be profitable, they are often involved in high-risk activities, such as money laundering and attracting dubious clientele. Despite the industry's potential for profitability, these ethical and operational risks make it an unattractive investment option.
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