The news that Crown Resorts will be allowed to continue operating its Melbourne casino following release of the findings of Victoria’s Royal Commission on Tuesday is great news for its Australia rival Star Entertainment Group, according to JP Morgan analysts.
The Finkelstein Report delivered arguably the best scenario Crown could have reasonably hoped for when it recommended the company be found unsuitable but allowed to continue operating Crown Melbourne for at least the next two years while working to return to suitability. That outcome drove Crown shares to jump by 8.7% on Tuesday but also saw Star shares climb by 4.6%.
Star is currently facing a regulatory inquiry of its own in New South Wales following similar media allegations aired last month to those that have brought Crown to its knees.
In a note, JP Morgan’s Don Carducci and Michael James said Commissioner Finkelstein’s report means “lots” for Star.
“[Star’s] misconduct is highly unlikely to have been ‘as bad’ as Crown’s, therefore the likelihood of an adverse outcome impacting trading from the NSW public inquiry is low,” they wrote.
“Unfortunately, the timeline to completion (of the Star inquiry) is well into [2022], thus negative sentiment may last for a longer period of time. However, we expect minimal trading impact following today’s announcement.”
Carducci and James have also upgraded Crown to Overweight, noting that the company is still trading at a discount “both historically and in relation to the expected impact from regulatory oversight in the next two years.”
They have set a target price for Crown Shares of AU$15 versus Tuesday’s closing price of AU$10.50.
