The Star shares extend losses as Morningstar slashes valuation
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The news: Star Entertainment extended losses on the ASX as Morningstar slashed its fair value estimate on the casino operator and halved its full-year earnings forecast.
The numbers: Star shares were down 5.88% to 24 cents by 1:30pm AEDT. The casino operator closed 3.8% lower on Wednesday, after the group reported an 18% slide in revenue, a 10% rise in operating costs, and an EBITDA loss of $18 million for the first quarter.
Morningstar lowered its fair value estimate from 67 cents to 50 cents, with around 45% of the downgrade due to lower earnings forecasts, 40% due to a more dilutive equity raise, and around 15% driven by the "prohibitive" interest rate of 13.5% on the Star's debt facilities.
Morningstar halved its FY25 EBITDA forecast to $67 million, with its FY26 and FY27 forecasts reduced by about a third.
The context: Morningstar analyst Angus Hewitt said that while the Star's shares are "materially undervalued", conditions have deteriorated "further than expected" for the group, and the impact of mandatory cards and cash limits is worsening.
However, Morningstar expects the Star to deliver "strong earnings growth" over the next decade, Hewitt said, buoyed by the recovery from pandemic-induced lows, the ramp-up of its Queen's Wharf and Gold Coast growth projects, and solid performance from its Sydney property.
The source: Morningstar research
