Here's why this fund manager sold its Star Entertainment (ASX:SGR) shares

One Aussie fund has cashed in its chips in its Star Entertainment holdings.

| More on:
A person in the dark background of a casino gambling room places his hands either side of a large pile of casino chips.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares in Star Entertainment Group Ltd (ASX: SGR) have been caught in a violent whirlwind of allegations and speculation over the last month and a half. During this time, the Star Entertainment share price has fallen more than 19%.

The dismantling of the company's value largely followed allegations stemming from a joint investigation by the Sydney Morning Herald (SMH), The Age, and 60 Minutes. It was alleged the casino allowed money laundering, organised crime, fraud, and foreign interference.

Following the reports, the Australian boutique fund manager Perennial Partners decided to sell its Star Entertainment shares.

Perennial jumps ship from Star Entertainment shares

Despite one of the most famous investing quotes advising "buy when there's blood in the streets", the team at Perennial Partners wasn't interested in applying it to the casino operator in October. Instead, the Perennial Value Australian Shares Trust did the opposite.

While Star Entertainment shares have recovered 15% since 12 October, the share price remains a long way off its recent 52-week high. Lingering in the minds of investors is likely the potential for a public hearing. However, as previously covered, this would depend on a recommendation by the current investigator, Adam Bell.

As it stands, Perennial's fund shouldn't be impacted by any further outcomes since exiting its position. The fund described its reasoning for the sale in its monthly report:

There was strong reason to believe that Star would be a beneficiary of this [improved compliance] process, including potentially merging with Crown. However, claims of similar issues at Star as had occurred at Crown, mean that the business will be effectively hamstrung for a period of time as these matters are investigated.

This was very disappointing, as Star was widely considered to have been much better managed than Crown. As a result, we decided to exit the stock.

Buying instead

The fund went on to use the proceeds from the Star Entertainment share sale to increase its holding in Incitec Pivot Ltd (ASX: IPL). Unlike the casino operator, Incitec has been enjoying the sustained appreciation of its share price in recent months.

On 15 November, the agricultural chemicals company reported a 91% lift in net profit after tax for the full year. Following the release, shares surged to a 52-week high. The team at Perennial Partners holds a positive outlook for the company on strong fertiliser prices.

Finally, Star Entertainment shares are down approximately 2% since the beginning of the year. Whereas, the S&P/ASX 200 Index (ASX: XJO) is up around 12%.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Consumer Staples & Discretionary Shares

Woman chooses vegetables for dinner, smiling and looking at camera.
Consumer Staples & Discretionary Shares

Here's the Coles dividend forecast from top analysts through to 2029

Can this defensive business provide pleasing payouts? Let’s take a look…

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Consumer Staples & Discretionary Shares

Guess which $14 billion ASX 200 stock is tumbling on big leadership news

The $14 billion ASX 200 stock is taking a tumble today. Here’s why.

Read more »

Couple look at a bottle of wine while trying to decide what to buy.
Consumer Staples & Discretionary Shares

Oversupply concerns to hit wine shares, report warns

Australia’s wine producers face more challenges.

Read more »

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Share Market News

Does this broker prefer Treasury Wine or A2 Milk shares?

These consumer staples companies are comparable in size but not in upside according to this broker. 

Read more »

Happy friends at a party enjoying pizza, symbolising the Domino's share price.
Broker Notes

Buy, hold, or sell Domino's Pizza shares after shock CEO exit? Here's what the experts say

The Domino's share price has been recovering after losing a quarter of its value last Wednesday.

Read more »

Photo of a happy couple with their car and car keys.
Consumer Staples & Discretionary Shares

What are Macquarie's top ASX All Ords picks in the automotive sector?

Aussie investors are becoming increasingly interested in auto stocks.

Read more »

basket of grocery items with smart phone ordering system
Consumer Staples & Discretionary Shares

Here's how Aldi plans to disrupt Coles and Woolworths with online shopping

Here’s Aldi’s latest move to try to win market share.

Read more »

Two male professional analysts discuss share price movements shown on the computer screen in front of them, with one pointing to a screen
Consumer Staples & Discretionary Shares

Broker tips 40-52% upside for these ASX consumer staples shares

This broker is tipping a big year ahead for these ASX shares.

Read more »