SGR downgraded on soft consumer outlook: JP Morgan

A soft domestic outlook and potentially weak consumer sentiment over the next few months will subdue Star Entertainment Group’s earnings in their Sydney and QLD properties, according to analysts from JP Morgan.

The brokerage announced earlier this week it has downgraded Star Entertainment Group (SGR) to Neutral.

According to JP Morgan analyst Don Carducci, soft domestic consumer spending will impact table games revenue growth – which is expected to reach 0.9 percent growth in 20H1. There will be limited near-term recovery as well, due to the opening of Barangaroo at the end of 2020. 

VIP margins are also expected to compress and unlikely to recover in the short term, said Carducci.

“Although initial interest in Barangaroo will likely be strong when it opens two to three months earlier than originally announced (FY21H1), the negative impact of two casinos in one location is the gambler’s ability to ‘choose’. Competitive promotions to capture and maintain local, finite gamblers pose margin risk,” said the analyst. 

The recent bushfires in Australia have also diverted some discretionary spending into donations and made consumers less willing and cautious to spend whilst others are struggling. 

JP Morgan said it has downgraded Star’s rating to Neutral, with subdued earnings growth in Star’s Sydney and QLD properties due to the soft consumer outlook. 

That being said, Queens Wharf & hotel room expansions remain, key long-term drivers.