‘How is any investment safe?’: Star punished as NSW tax spooks investors

Corporate governance and legal expert Helen Bird was also surprised the NSW government had not consulted the casino operators about the proposed changes but said Treasurer Matt Kean was under no requirement to do so.

“I am surprised no notice was given because tax amendments work more smoothly following consultation, but there’s no formal requirement to do so. The popularity stakes definitely favour an anti-casino view of the world at the present point,” Bird said.

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Bird argued it’s clear the state government believes casinos can afford to pay more to contribute to a broader social licence while the casino operators believe higher taxes could cripple much of the profit left in the organisation, “the truth is likely somewhere in the middle,” she said.

Star’s share price has fallen by close to 40 per cent over the past year, following an investigation by this masthead which uncovered extensive money laundering and poor governance later confirmed by Adam Bell in a state inquiry. The casino operator recorded a $199 million loss in 2022 and set aside a goodwill impairment charge of $162.5 million for its Sydney casino.

Morningstar’s equity analyst Angus Hewitt has lowered the fair value estimate for the group by 28 per cent to $2.80 on the back of the likely state levy increase noting the “details of the tax change are scant…the impact remains highly uncertain.”

Morningstar estimates about 85 per cent of the increase to be applied to Star and forecasts a permanent increase in the casinos gaming taxes, levies and commissions by about 10 per cent of its total gaming revenue from fiscal 2024. This is because Star will likely retain the majority of table gaming market share in NSW as well as its pokies exclusivity.

Meanwhile, UBS and Jarden analysts noted Star could be entitled to financial compensation if there are material changes to key regulatory arrangements as indicated by the proposal. Its original agreement with the NSW government is not due to expire until 2041.

A UBS analyst note on Monday said the proposal is “policy positioning” ahead of next year’s state election and there is not enough time to pass the required enabling legislation before March.

Jarden analysts have cut their 12-month share price target for Star from $3.49 to $2.80 and implemented an overweight rating on the stock.

The head of property development industry group Urban Taskforce Tom Forrest said the treasurer’s “thought bubble” lacked proper consultation with the industry who felt blindsided by the proposal,

“There is the very real chance that the unilateral announcement of the possibility of changes to the tax regime will threaten planned investments. Thought bubbles may be good politics, but they have real consequences for companies and for investment decisions.”

Forrest added he was concerned planned public domain investments could now be at risk as a result of the surprise changes and the proposal “undermines the confidence the commercial sector has in government.”

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