Afternoon Report / Shag on a rock!

By Market Matters 14 July 17

Shag on a rock!

Market Matters Afternoon Report 14th July 2017

A positive session to wrap up the week with the Energy stocks benefitting from a resurgence in the Oil price  - which closed out around $US46/bl. This put some solid pressure on Qantas with the stock down -4.56% to close at $5.44 – the biggest decline in more than a year. QAN would get interesting under $5.00.

Qantas (QAN) Daily Chart

On the broader market today, we had a range of +/- 39 points, a high of 5779, a low of 5740 and a close of 5765,  up +28pts or 0.49%.

ASX 200 Intra-Day Chart

ASX 200 Daily Chart

Star Entertainment (SGR) – a stock we’ve been running the numbers on for some time now, traded back into our range yesterday and we were keen buyers around $5.10 this morning, only to see the stocks open at $5.20 and roar up +3.52% to close at  $5.30. We continue to like SGR  however will await better levels…

Our rationale from this AM!

Star Entertainment (SGR) – $5.12

We’ve owned Star Entertainment in the past, buying in February of this year at $4.76 and selling in May at $5.61 - we also picked up a nice 7.5c full franked dividend along the way for a total return of +19.43%. Star is once again looking interesting after trading back down to the low $5’s, closing yesterday at $5.12. As a refresher, The Star operates The Star in Sydney, Jupiter’s Hotel & Casino on the Gold Coast and Treasury Casino & Hotel in Brisbane. They also manage the Gold Coast Convention and Exhibition Centre. Furthermore, they’re progressing with the development of a new Integrate Resort as part of the Queen's Wharf Brisbane project due for completion in 2022.

This obviously means that expenditure will be reasonable high as this project completes, however the development will drive long term earnings. It seems recent weakness  is driven by a couple of things. Soft consumer sentiment and reluctance to spend  in Australia is a well-known theme, however it’s one that impacts Star. The other is around valuation and near term earnings. 2017 is  expected to see a decline in earnings relative to 2016 which puts it on a forward PE around 19 x, which is rich for a company that has seen top line (revenue) decline over the 12 months (-2%). However, from F18, given the composition of their assets earnings will once again start to grow putting it on a PE nearer 16 times on FY18 and a yield of 3% FF. Strong balance sheet, good future growth, Chinese Tourism, and the stock has come back to attractive levels.

There has also been some talk (largely being pushed by Citi) suggesting that if Crown were to buy the Star, this would lift Crown earnings by up to 22% assuming they made an all-cash deal at a 30% premium to its last close – equates to around $6.45 when the note was penned. Corporate appeal always tends to help a share price however is not the reason to buy a stock.

The Star Entertainment Group (SGR) Daily Chart

Have a great weekend and keep an eye out for the report on Sunday.

 

The Market Matters Team

  

Disclosure

Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday.

 

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All figures contained from sources believed to be accurate.  Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy.  Prices as at 14/07/2017.  5.00PM.

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