Star Entertainment Shares Plummet 20% to All-Time Low Over Proposed Tax Changes

  • Star Entertainment revealed the proposed changes could lead to an earnings hit of AU$1.6bn
  • The non-cash impairment charge will be included in the company’s half-year results
  • NSW government aims to increase the tax rate on gaming machines and table games
  • Star’s Sydney casino accounts for about half of the group’s total revenue
Falling stock chart
Star Entertainment’s share price dropped 20% after the company revealed it is facing a non-cash impairment charge of up to AU$1.6bn due to proposed NSW tax changes. [Image:]

Worrying potential changes

Star Entertainment’s shares plummeted 20% on the back of a company announcement about a potential earnings hit of up to AU$1.6bn (US$1.1bn) due to proposed tax changes. The Star stock price has now reached an all-time low following the news on Monday.

“undertake an urgent review” of its assets and operations in Sydney

Star has concerns about the impact that planned tax increases in New South Wales (NSW) would have on its operations. It warned investors that the implementation of proposed changes would lead to management having to “undertake an urgent review” of its assets and operations in Sydney.

Uncertain times

As a result of the proposed tax increases, Star is planning a non-cash impairment charge of between AU$400m (US$278m) and AU$1.6bn (US$1.1bn). This charge will be included in its half-year results that are set for release on February 23. The exact amount depends on the final tax rates on gaming machine and table game revenue.

Star currently holds exclusive rights to operate gaming machines at NSW casinos. The proposed increase, expected to take effect in July, would see the top tax rate on monthly per-machine revenue rise to 60.67%. Legislation would need to be passed for the tax changes to come into effect, unless Star comes to some sort of arrangement with the government.

Star Entertainment has its flagship casino in Sydney, as well as two casino resorts in Queensland.

The proposed tax changes were revealed in December; Star Entertainment’s share price has dropped over 40% since then. The tax reform proposal is a key issue surrounding the March 25 NSW elections.

A company in firefighting mode

The plan by the NSW government to increase gambling taxes comes as Star’s flagship property in Sydney generated 13.5% less revenue in the second half of 2022 than it did in the same time span before the pandemic. For the company’s fiscal year 2022, the Sydney casino operations made up about half of total revenue for the group. It is facing increased competition following the opening of Crown Resort’s casino in Sydney last August. Overall group revenue was just 1% lower than pre-pandemic levels.

still trying to regain its credibility

The company as a whole is still trying to regain its credibility and deal with the implications of two wide-ranging inquiries into its operations in Australia. Independent inquiries in NSW and Queensland led to recommendations that Star should be stripped of its licenses. Issues included enabling money laundering, extensive fraud, and foreign interference with its properties.

Star was hit hard by financial penalties, including two separate AU$100m (US$69m) fines in NSW and Queensland. The company is also facing numerous class action lawsuits from shareholders and costly changes to its compliance systems.

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