Australia casinos expected to join global closures this week: JP Morgan

Tuesday 17th of March 2020

Australia’s casinos are expected to be forced to close their doors later this week, prompting analysts at JP Morgan to slash their earnings forecasts for the operators.

The firm said it is cutting its estimate for full year net profit for Star Entertainment Group by 69.2 percent and for Crown Resorts by 72.5 percent.

It said its decision was based on the impact from social-distancing measures that have already been announced, travel restrictions into Australia and the potential for imminent venue closures.

“We now model SGR & CWN closures forecast effective from later this week (for 2 weeks [reviewed 2 weeks rolling]) using recent examples in the US (MGM Resorts and Wynn Resorts closing on the Las Vegas strip).”

JP Morgan said both casinos have high-fixed costs and a disruption to operations poses significant downside risk.

It sees a 43 percent decline in revenue for Star and a 41.7 percent drop for Crown, with a forecast for Star’s VIP revenue in Sydney to collapse from $155.2 million to $35.8 million and in Queensland from $55.3 million to $18.6 million.

For Crown it sees a decline in Melbourne VIP revenue in H2 to $145.7 million to $31.2 million and Perth from $35.3 million to $9.3 million.

The social distancing measures may also take their toll on suppliers, putting machine purchases at risk should the measures be of long duration. On a more positive note, however, it said Aristocrat may benefit from casinos buying machines with industry best turnover.

“Gamblers are also likely to revert to ALL’s digital games supporting digital earnings as seen in our Italy example,” it said.