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

a person in the dark background of a casino gambling room places his hands either side of a large pile of casino chips on a card table.

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%.

The post Here’s why this fund manager sold its Star Entertainment (ASX:SGR) shares appeared first on The Motley Fool Australia.

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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.

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