Star Entertainment Earnings: Remediation Woes Linger

We maintain our AUD 1.80 fair value estimate for no-moat Star Entertainment. Underlying fiscal 2023 EBITDA lifted 34% to AUD 317 million, about 6% above our forecast. Reduced pandemic restrictions allowed significant revenue and earnings growth across all properties. But earnings remain materially below pre-COVID-19 levels as regulatory operating restrictions and exclusions have been exacerbated by weaker consumer spending. We lower our fiscal 2024 EBITDA forecast by about 8% to AUD 341 million, largely due to lingering remediation costs and lower VIP gaming forecasts. But our EBITDA forecasts from fiscal 2026 are largely unchanged, and Star shares screen materially undervalued. We think investors are too focused on near-term headwinds, overlooking Star's earnings potential as conditions normalize.