Cleaned up

RETAIL ENTITLEMENT OFFER

Need To Know

• 3 for 5 entitlement offer at $1.20 per share to raise ~$800m
• Offer closes 5pm 13 March 2023
• Institutional Offer and Placement has already raised $594m of the total

Summary

The Retail Offer is aiming to raise approximately $206m (172m shares). Proceeds will be used recapitalise the balance sheet. The Retail Entitlement Offer price of $1.20 per share is the same as the Institutional Placement price, which is currently ~20% discount to the current share price. The Retail Entitlement offer represents a good opportunity for existing investors to participate in the capital raising acquiring shares at a discount to the current market price at the same price as the institutional offering and to avoid the dilutionary impact of the offer. Consider participating in the Entitlement Offer provided this is in line with individual investor objectives.

Investment Thesis

The equity raising will financially restore the company to a solid footing, but SGR is still facing an unknown quantum of fines. SGR has made provisions of $350m for fines. Additionally, the NSW State Government has proposed increased rates of tax on electronic gaming machines in casinos that will further impact on the earnings recovery for SGR.

The proceeds of the capital raising will be used to reduce debt which will fall to about $341m from $1.1bn. Leverage will fall to 0.8x.

Further cash proceeds could be raised by the company through asset sales that could potentially bring in around $500m.

SGR’s casino licences are currently suspended in both NSW and Queensland.

SGR continues its negotiations with the NSW State Government on the proposed increase in EGM tax rates. SGR has said the increase could impact earnings by ~$100m pa and would force it to take strong cost cutting action if the full increase is imposed.

SGR will open its Queens Wharf Brisbane development from December 2023. QWB will provide a range of non-gaming attractions such as hotels, bars and restaurants, a ballroom, Sky Deck viewing platform and abundant public space as well as a replacement casino floor for the old Treasury Brisbane casino which will become a hotel.

SGR’s new CEO Robbie Cooke is an experienced and capable executive leading a reinvigorated team with a very different attitude towards its regulatory and compliance requirements.

Key Risks

The main earnings risk for SGR is the uncertainty of the NSW State Government tax rate increases. More generally, regulatory and legislative risk continues to be a pervasive risk for the casino industry following the various State Government reviews into licence suitability and corporate behaviour.

The impending introduction of mandatory cashless gaming in NSW and Queensland may have a deleterious effect on spending patterns at casinos. 

Consumer confidence may be vulnerable to the impact of higher interest rates impacting leisure spending habits. Consumer attitudes to casino gambling may change over time.

Higher inflation may be impacting SGR’s ability to control its cost base, particularly labour.

The NSW and Queensland State Government regulators, at the recommendation of the supervisory licence managers, decide not to restore the suitability of SGR to hold a casino licence at the end of the probationary period.

Additional Research

For additional information see our latest SGR research note. 

_{Corporate actions: Sandstone Insights has not considered individual investor circumstances in this report. Investors need to consider the suitability of corporate actions in the context of their own financial circumstances and investment goals. Before acting on any information, please consider the appropriateness of the information provided for your personal circumstances. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.}