Investment implications
SGR investment case remains challenged and in the ‘too hard’ basket for most investors at present. The clouds of concern include; NSW & QLD government inquiries, remediation/regulation impost, balance sheet leverage; the pending opening of Crown Sydney and its impact on SGR’s revenue; and the impact of any slow-down in consumer spending on gaming spending.
Appointment of experienced gaming CEO Robbie Cook this week reflects the need for SGR to walk down the ‘pathway of repentance’ and change corporate behaviour. This will be ongoing over the next 12 months. In our view, these changes are essential if SGR is to keep its gaming licences in both NSW and QLD – which remains our base case view.
Stepping back from the list of investors’ concerns is business with property assets which we believe are worth >$3.00 per share. Further, if the business was broken up into property assets/operating assets – a further $2-3 of value per share could be created in our view.
We have seen in the case of Crown Resorts (CWN) that the market can become too focused on short-term issues and loses sight of the bigger picture once the clouds of worry begin to clear. Blackstone’s takeover of CWN came against a similar list of investors’ concerns (and similarly depressed share price) SGR’s earnings have halved from what they were in 2020-21 period, to $200m. We are confident that earnings can return to >$400m, factoring in both higher ongoing costs post regulatory/remediation issues.
Using SGR’s 9.0x long-term EV/EBITDA multiple vs the current 7x EV/EBITDA, suggests investors could be rewarded with >30% return, implying share price >$3.80 once the regulatory clouds have cleared. Upcoming catalysts include August FY22 Results, NSW Inquiry findings (likely this quarter) and QLD Inquiry findings later this calendar year.
This commentary reflects our initial view. 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.
