Modest growth expected in SkyCity's first-half profit

SkyCity starts the latest New Zealand reporting season this morning and only modest growth is expected in its first-half operating profit.

Forsyth Barr broker Suzanne Kinnaird said yesterday growth in New Zealand properties was expected to outweigh pressure in Australia and higher corporate costs.

The key areas presenting a reasonable margin for error were international business and the level of corporate cost growth.

The timing of capital expenditure was also influential to net interest costs.

SkyCity highlighted modest revenue growth in the first four months of 2018 for its key Auckland property. Forsyth Barr expected a weaker end to the first half of the financial year along with a small lift in margins, she said.

There had been material changes in the executive team and board in the last 12 months, including a new chief executive and chairman.

``We look for greater insight on strategy and plans.''

There was an up-side to earnings if SkyCity could utilise its New Zealand International Conference Centre concessions and grow its Auckland franchise, Ms Kinnaird said.

Consumer activity levels in its key Auckland market remained robust but were more challenging in Adelaide and Darwin.

SkyCity had an opportunity to lift its market share in the international VIP market, although the outlook for Australasian operators was uncertain, particularly after Crown employees were detained in China.

The start of the reporting season comes at a time of volatility in global markets, started by a record fall in United States markets on Monday.

Ms Kinnaird said the ``good weather'' had come to an end.

Of the 42 companies reporting, despite the extremely modest expectations for market growth across the board, 13 companies were still expected to deliver normalised earnings per share growth of more than 10%.

However, reflecting the full value of the market, just two of those 13 companies were currently rated as outperform - A2 Milk and New Zealand Refining.

Contact Energy, which reported on Monday, had a tough first half with low hydro volumes hurting earnings. While earnings were temporarily low, Forsyth Barr expected a small increase in the interim dividend in line with Contact's full-year dividend guidance.

Genesis Energy's operating earnings were expected to increase by 25% on the previous period.

However, much of the growth was acquired through increasing its Kupe stake and buying the Nova LPG business, Ms Kinnaird said.

The A2 Milk result encompassed two key trading sales periods as well as the company's first material push into direct Chinese sales channels.

``We expect material sales growth and earnings leverage and an update on the United States roll-out.''

The other major company to report next week was Auckland Airport, she said.

Slowing passenger growth, lower aeronautical charges, following the July 2017 reset, and retail disruption would dampen earnings growth following a multi-year strong growth phase.

The balance sheet would be a key area of focus, given capital expenditure funding needs, Ms Kinnaird said.

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