SkyCity: RWC build on the menu

SkyCity Entertainment expects to benefit from the Rugby World Cup. Photo by NZ Herald.
SkyCity Entertainment expects to benefit from the Rugby World Cup. Photo by NZ Herald.
Listed casino owner SkyCity Entertainment appears to be in a prime position to benefit from the Rugby World Cup being held in New Zealand this year.

SkyCity Entertainment may have lost a little of the favour brokers previously had lavished upon it, but the listed casino owner is working hard to gain every benefit it can from the Rugby World Cup being held in New Zealand later this year.

The company recently announced SkyCity Auckland would soon start construction of three new signature restaurants and bars on Federal St, between the main casino and the SkyCity Grand Hotel.

The street is mainly occupied by taxis and is used as a thoroughfare by commuters at night.

The three restaurants and bars would add to SkyCity Auckland's existing 19 venues and be next to the Bellota tapas bar, the company said.

Top Wellington chef Al Brown (Logan Brown), award-winning Australian chef Sean Connolly and Luke Dallow (owner of Auckland's Sale St Bar and Chapel) would join established chef Peter Gordon, who already had "dine by Peter Gordon" and Bellota, SkyCity chief executive Nigel Morrison said.

"These guys all have such strong reputations for delivering extremely successful restaurants and bars across Australasia, and we are thrilled to have their expertise as part of our leading hospitality team.

"I'm sure these new venues will complement the very successful Bellota, and this is a great way to start our revamping of Federal St," he said.

Craigs Investment Partners has a hold on Sky City Entertainment shares and Forsyth Barr recently downgraded its recommendation from buy to accumulate.

Craigs broker Chris Timms said, while the company would benefit from the Rugby World Cup, underlying gambling expenditure in New Zealand and Australia was expected to remain challenging throughout 2011. Operating leverage was not yet evident.

"The potential for significant capital expenditure spending remains a risk, particularly if the requisite concessions are not granted."

The company had a strong start to the second half of the financial year, with normalised revenue growth of 9% in the first six weeks.

However, it was boosted by VIP turnover and the timing of Chinese New Year. VIP turnover in the first six weeks was at least $360 million, he said.

The underlying growth rates were still strong, particularly in Auckland, Hamilton and Darwin. Adelaide had remained flat given weak consumer expenditure.

Most of the growth was in machines, although table revenues appeared to be improving gradually. Non-gaming revenue growth remained strong at some properties, Mr Timms said.

SkyCity was undertaking several projects in Auckland including VIP facilities, Platinum and Diamond Rooms, and the Federal St precinct.

In Australia, it was making changes in Darwin.

The company was still awaiting developments in relation to the possible construction of the National Convention Centre in Auckland ($300 million) and the redevelopment of the Adelaide Casino ($339 million).

In Auckland, construction of the VIP villas, salons and the new Pacific Room started in January.

The company was aiming to have construction completed before the start of the world cup.

The project would include three new VIP salons and four premium VIP villas, which would be ready by the end of June.

The new Pacific Room, rooftop bar and deck and an additional VIP salon for groups would be completed by the end of August.

Total cost was expected to be around $30 million, Mr Timms said.

On the main gaming floor, a new Diamond Tier facility would be created.

The Diamond Lounge would have up to 250 gaming machines and target local players. Construction will start this month.

SkyCity continued to have discussions with the Government about a national convention centre in Auckland and believed it had presented the strongest commercial development proposal, he said.

Discussions were delayed as the Government was responding to the first Christchurch earthquake and the Pike River Coal disaster, as well as a change in the local council.

A conclusion was expected to be reached in six months, Mr Timms said.

Forsyth Barr broker Peter Young said uncertainties remained in forecasting the near to medium-term earnings for SkyCity given the uncertainties around the economic recovery time line.

The company reiterated at its first-half result it would be disappointed if it did not beat its $127.4 million guidance and the Forsyth Barr forecast was unchanged at $130.8 million.

"We continue to expect in full-year 2011 that Sky City will leverage off the increased activity levels around the Rugby World Cup, plus a gradual recovery in the economy."

Mr Young was encouraged the key core gaming-machine operation was coming back to life after significant management initiatives.

There were signs the local Asian premium table play had reached the bottom of the dip, although that was likely to require improved economic conditions before strongly bouncing back.

The improved premium table facilities under development would also help drive a recovery in local premium play as well as future growth in the international business, he said.

Near-term risks included a softening in consumer confidence nationally because of the February earthquake and rising petrol prices, Mr Young said.


Things to watch 


• Changes to the New Zealand economy and household disposable income. Auckland accounts for 60% of group earnings.
• The benefits from recent main gaming floor refurbishments.
• Changes to the regulatory environment.
• Major capital expenditure projects.
• Movements in the $NZ-$A exchange rate.


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