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The Star says Crown takeover ‘still stacks up’, would consider Barangaroo deal

Crown’s casino licence for its new $2.2 billion Sydney tower remains suspended after the Bergin Inquiry ruled in February that it was unfit to hold a licence in NSW.

Mr Bekier said progressing a deal was also challenging given the leadership vacuum at Crown, with chairman Helen Coonan set to leave the company by the end of this month and a replacement yet to be appointed.

The Star says it will consider buying just Crown’s new Sydney casino if its rival has to split up its business.

The Star says it will consider buying just Crown’s new Sydney casino if its rival has to split up its business. Credit:Peter Braig

“They don’t have a chairman who has a clear set of directions you know you can engage with,” he said.

The Star’s share price jumped almost 7 per cent on Thursday to $3.62 after it revealed it was looking to sell and lease back its flagship Sydney property and its Treasury Brisbane building.

Selling and leasing back properties is becoming common for casino operators around the world and was a key part of The Star’s strategy behind its Crown merger proposal.

Mr Bekier said it was too soon to say what he would do with the proceeds from any sale, but that returning capital to investors – who have not been paid a dividend in the past two years due to the pandemic – would be “high up on our list”.

The Star could also be in line for a windfall after confirming this week it was negotiating with the NSW government to purchase 1000 more poker machines for its Sydney casino from under-performing pokies venues in the state.

Mr Bekier said on Thursday it was an “anomaly” that The Star Sydney had only a licence for 1500 slot machines when other major casinos around the country including Crown Melbourne and Perth and The Star’s Queen’s Wharf Brisbane had around 2500. The Star would retire one poker machine out of every three its buys under the government trading scheme, intended to reduce the total number of pokies in the state.

“These machines would generate a lot more tax and do that in a safe environment… because unlike some of the other players in the market we take responsible gaming very seriously,” Mr Bekier said. “From the government’s point of view and from our point of view, that seems like a reasonably good proposition”.

Goldman Sachs analyst Desmond Tsao said in a note to clients on Thursday morning that 1000 more poker machines could have “a significant positive impact” on The Star’s earning power, adding around 11 per cent to its group-wide revenue.

The Star on Thursday reported that it swung back into the black for the 2021 financial year with a $58 million net profit after tax, compared to a pandemic-inflicted $94 million loss last year.

John Ayoub, portfolio manager at Star shareholder Wilson Asset Management, said Star’s cost discipline was the highlight of the result, with capital spending down 63 per cent and net debt cut by $211 million to $1.1 billion during the year.

“The biggest concern coming into Star’s result was how they would deal with the lockdowns. [But] they’ve been able to deleverage their balance sheet to an extent where there’s less concern around the need for extra capital,” he said, with those concerns further allayed by the potential property sales.

“What it highlights is that when there is a rebound… we should see some strong operating leverage out the other side.”

Normalised earnings before interest, tax, depreciation and amortisation – the measure most closely watched by investors – was $431 million, 1 per cent ($6 million) behind the market consensus forecast.

The Star did not declare a dividend for the second year running. The company agreed as part of a covenant waiver with its banks to not resume shareholder payouts until its gearing falls below 2.5 times.

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