Star Entertainment (ASX:SGR) Drops 16% Despite First EBITDA Profit in Quarters: Buy, Sell, or Wait?

Star Entertainment turns EBITDA positive but survival risks remain

Star Entertainment (ASX: SGR) plunged 16 per cent to A$0.14 on Friday despite reporting its first positive underlying EBITDA in several quarters. The casino operator posted A$301 million in revenue for the December quarter, up 6 per cent from the previous period. More importantly, it delivered an A$6 million EBITDA profit compared to an A$13 million loss in the September quarter. For investors watching this turnaround story, the market’s harsh reaction tells us something important: one decent quarter is nowhere near enough to fix the deep problems threatening this company’s survival.

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Star Entertainment’s Trading Stabilises But Headwinds Persist

The revenue boost came from three areas: steadier trading at Star Sydney, stronger seasonal volumes on the Gold Coast, and a fixed A$5 million monthly operator fee for The Star Brisbane. The return to positive EBITDA, even at just A$6 million, shows that cost-cutting efforts are finally working after two brutal years of losses.

However, the company itself admits that mandatory carded play and cash limits in NSW continue to hurt business. This marks the first positive EBITDA since Bally’s Corporation and the Mathieson family assumed a combined 61 per cent controlling interest. In other words, the new owners have inherited a casino business that regulators have tied down with strict rules. We believe the operational improvement is genuine, but these regulatory restrictions make it very hard to predict whether profits can grow from here.

Why the Market Rejected Star’s Profit Turnaround

The sharp selloff despite good news reveals what really worries investors: the massive AUSTRAC fine hanging over the company. Australia’s financial crimes watchdog is seeking an A$400 million penalty for anti-money laundering failures. This amount would almost certainly destroy the company. Star has argued in court that even an A$65 million fine would make it insolvent.

The debt situation makes things worse. Star Entertainment owes A$346 million in syndicated borrowings due for refinancing by late 2026, with strict conditions attached. Banks have already granted multiple waivers over the past two years, and their patience appears to be running out. Revenue is up 1 per cent compared to the same quarter last year, though trading remains at historic lows. In our view, one quarter of modest profit simply cannot answer the big question: can this company survive its legal and financial problems?

The Investor’s Takeaway for Star Entertainment

Star Entertainment trades at a fraction of its past value, which looks cheap if the turnaround works. The bull case is straightforward: Bally’s knows how to fix struggling casinos, the Mathieson family has deep pockets, and perhaps the worst-case scenario is already reflected in the recent beaten-down share price. Bally’s Chairman Soo Kim has said he sees strong potential across all three casino properties.

The bear case is just as strong. An AUSTRAC fine anywhere close to A$400 million would likely push the company into administration. Even a smaller penalty could break debt agreements and trigger fresh cash problems. The permanent impact of gambling restrictions may have damaged the business model for good.

Our view: Star Entertainment remains deeply speculative and unsuitable for cautious investors. We believe waiting for the AUSTRAC ruling before taking any position is the smart approach. If the fine comes in below A$65 million and refinancing is secured, the risk-reward could improve. Until then, the survival question has no clear answer.