Category: Expert Insights
Expert Insights is a collective gallery of knowledge and information packed articles/ blogs/ podcasts from the Industry Captains as well as the Sr. Research Analysts from our team.
Investment Thesis:
- Additional cost measures announced to support earnings.
- Monopolies in the casino industry in SGR’s operating geographies and is one of the market leaders in other games such as slots.
- Economic moat in the nightlife landscape in Sydney given regulatory environment (such as lock-out laws).
- Diversified business base across different types of entertainment, hotels, retail stores and food & beverage establishments.
- Strong tourism growth once borders reopen is expected to a tailwind for SGR.
- Lower AUD could improve international spending in domestic markets.
- Domestic table games segment remains strong.
Key Risks:
- Weakening VIP segment, potentially making Sydney less viable.
- Further deterioration of consumer spending and household discretionary income
- Regulatory risks e.g. repeal of lockout laws could increase competition in the nightlife landscape in Sydney.
- Establishment of new Crown casino in Sydney will increase competition (especially amongst VIP customers) and could potentially dismantle SGR’s monopoly in Sydney.
- Win-rate risk (if the casinos have a much lower win-rate than the mathematical expected value).
- Potential scandals.
Key Highlights:
- On a normalised basis, gross revenue declined -22% to $580m, EBITDA declined -87% to $29m and NPAT was a loss of $74m, impacted by Covid-19 related property shutdowns, operating restrictions, and border closures. Statutory EBITDA of $31m (pre significant items) was down -87% and statutory net loss was $74m (post significant items) vs profit of $49.7m in pcp.
- Operating expenses increased +23.6% to $401m, reflecting Covid-19 related inefficiencies and investment in staff to position the properties for re-opening.
- Net debt increased by +4% over 2H21 to $1.2bn with net leverage increasing to 5.2x, impacted by property shutdowns. However, SGR received full waiver of debt covenants for the December 2021 testing date and an amendment of the covenant ratios for the June 2022 testing date.
- SGR has liquidity of $520m in cash and undrawn facilities.
- Asset sale continued (to release capital from non-core or low-yielding assets), with SGR selling VIP jet for ~$40m, entering into agreement for the sale of an interest in the Treasury Brisbane assets for $248m (ex GST) and continuing work on the potential sale and leaseback (or similar transaction) of a minority holding in The Star Sydney property.
- Operating cashflow declined -96% to $11m with cash collection down -90% to 45%.
- Capex of $125-150m (FY23 guidance is ~$175m).
- D&A expense of ~$205m.
- Net funding costs of $50-55m.
- JV equity contributions of ~$35m, primarily relating to Gold Coast Tower 2.
- Cost pressures to continue in 2H22 driven by wages, insurance, energy, Covid-19 related challenges and further investment in headcount in regulatory and compliance functions.
- Trading Update – in the period from 1 January 2022 to 13 February 2022, total revenue was up +7% YoY with Sydney revenue up +20% (gaming revenue up +17% and non-gaming revenue up +46%) and Queensland revenue is down -6% (gaming revenue down -12% and non- gaming revenue up +32%) with Omicron impact peaking in mid-January and progressively easing.
Company Description:
The Star Entertainment Group Limited, an integrated resort company, provides gaming, entertainment, and hospitality services in Australia. The Company operates through three segments: Sydney, Gold Coast, and Brisbane. It owns and operates The Star Sydney casino, which includes hotels, apartment complex, restaurants, and bars; The Star Gold Coast casino, which consists of hotels, theatre, restaurants, and bars; and Treasury casino in Brisbane that comprises hotel, restaurants, and bars. The company also manages the Gold Coast Convention and Exhibition Centre. The company was formerly known as Echo Entertainment Group Limited and changed its name to The Star Entertainment Group Limited in November 2015.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Business Strategy & Outlook:
As the leader in electronic signatures and contract life cycle management software, DocuSign has a long runway for growth through viral adoption in greenfield opportunities. The existing customers adopting more use cases and expanding seats over time, and also moving to the Agreement Cloud platform. DocuSign’s vision is to modernize the contracting process by taking it from a disjointed and paper-based manual sequence of steps to an automated digital and collaborative system. The company has mastered the “sign” step of the process and has used it to build the Agreement Cloud around, but there’s more to DocuSign than just e-signatures. The Agreement Cloud is a platform that includes tools to help users prepare contracts using intuitive drag and drop forms, negotiate, e-sign using a variety of enhanced security and identification means, automate agreement workflows for satisfying contract elements post-execution, allow for payment collections, and centralize account management.
As use cases expand, it is expected that the current primary driver of growth, the e-signature solution, to continue to grow rapidly thanks to the company’s entrenched leadership position and the more unpenetrated market. Underlying the larger picture is that the company still offers free trials and self-service for pain-free test drives. There’s visibility of strong adoption in more than one million paid customers, with 88% involving a sales rep, and hundreds of customers already driving annual contract value in excess of $300,000 annually. In the meantime, net dollar retention rates have been strong, about 120%, which is very good and is in line with other self-service, viral adoption models in our coverage. Based on a bottom-up analysis, management estimates that DocuSign has a total addressable market of $50 billion, half of which is e-signatures alone, while Agreement Cloud is the next largest piece, with other services making up a smaller opportunity.
Financial Strengths:
DocuSign is a financially sound company with a solid balance sheet, improving margins, and rapidly growing revenue. Capital is generally allocated to growth efforts and acquisitions, with no dividends or buybacks on the horizon. As of fiscal 2022, DocuSign had $803 million in cash and marketable securities, compared with $718 million in long-term debt. The company generated non-GAAP EBITDA of $593 million in fiscal 2022, representing gross leverage of 1.2 times. DocuSign generated free cash margins of 15% in fiscal 2021 and 21% in fiscal 2022. It is expected that free cash flow margins to continue to expand during the next five years. The debt relates to convertible notes due in 2024. DocuSign can satisfy its obligations while continuing to fund normal operations.
The company has made a variety of relatively small acquisitions, including Seal, totaling in excess of $400 million over the last several years. Company view these as feature additions or product extensions that are additive to the company’s product development efforts. While it is acknowledge the timing and size of potential future acquisitions may vary, nonetheless model a modest level of acquisitions annually.
Bull Says:
- DocuSign is the market leader in e-signatures and is expanding to a broader contract life cycle management solution.
- The free trial, easier implementation, and rapid return on investment for DocuSign customers make for a compelling sales pitch. The company is also enjoying success moving upstream to larger customers.
- DocuSign’s market consists of considerably more greenfield space than is typical within software.
Company Profile:
DocuSign offers the Agreement Cloud, a broad cloud-based software suite that enables users to automate the agreement process and provide legally binding e-signatures from nearly any device. The company was founded in 2003 and completed its IPO in May 2018.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.