SkyCity Casino is set to invest large without assurances of
cross-party support for some ambitions. Photo by the New
Lean times appear to be ahead for casino and tourism
operator SkyCity Entertainment as its embarks on its $500
million Adelaide redevelopment, but which in the long term
could underpin large gains.
Still hanging over SkyCity is its controversial deal with the
Government to spend more than $350 million on a conference
centre, in return for boosting casino table numbers, a deal
without cross-party political support.
Of increasing concern to analysts is the strength of the New
Zealand dollar against its Australian counterpart, which is
prompting outlook revisions.
Craigs Investment Partners broker Peter McIntyre said SkyCity
continues to face an environment, in both New Zealand and
Australia, which ''is not conductive to earnings growth''.
''Despite signs and prospects of an improving economic
outlook in New Zealand, trading performance remains patchy at
the key Auckland property, while no such benefits are evident
at [casinos in] Hamilton or Adelaide,'' Mr McIntyre said.
SkyCity is due to report its first-half trading result today,
having in October reported to shareholders modest revenue
growth in New Zealand and a flat result out of Australia.
SkyCity financial guidance in December was for a decline in
first-half after-tax profit, from $72 million a year ago to a
range of $65 million-$68 million.
For its full-year trading, Craigs is estimating a decline in
earnings before interest, tax, depreciation and amortisation
(Ebitda) from $303 million a year ago to $299 million, while
Forsyth Barr predicts first-half revenue will be down from
$450 million in first-half 2013 to $415.7 million, with net
profit down from $72.1 million to $66 million.
Forsyth Barr broker Suzanne Kinnaird said she expected a
''soft'' first-half result because of ''subdued'' operating
conditions, the impact of the high kiwi dollar when
exchanging Australian-dollar earnings and the overall
''mature'' gaming markets.
''Current trading in New Zealand will be of interest given
the improving economic conditions,'' she said.
Mr McIntyre said the kiwi dollar strength was a ''significant
headwind'' for SkyCity during 2014, and had recently had to
review the earlier forecast A85c cross rate up further.
Ms Kinnaird said following SkyCity guidance that profit would
be well down on a year ago, she estimated there might be a $3
million negative impact because of the strength of the kiwi
She said key issues this year included signs of growth in
Auckland, regular updates on capital expenditure on the
projects and SkyCity's outlook for second-half trading.
Mr McIntyre said the Adelaide development would have a
significant effect on the property and would be a ''key
driver'' of anticipated earnings growth over the long term;
noting the addition of car parks in Adelaide was
''critical'', but was still outside SkyCity's control.
Adelaide's redevelopment would introduce much-needed growth,
considering the capital expenditure required for Auckland and
Adelaide, with gains only beginning from redevelopment
completion in 2017.
At that point Mr McIntyre expected Adelaide revenue to have
increased from the present $A150 million to more than $350
million, with Ebitda correspondingly up from $A40 million to
He was ''increasingly cautious'' about adding value into
SkyCity from the proposed more than $350 million conference
centre at Auckland as the ''rhetoric'' of the opposition
parties remained ''cause for concern''.
''It's a deal reliant on the full suite of regulatory reforms
to provide a return,'' Mr McIntyre firstname.lastname@example.org