SkyCity says second half revenue up 17.9%, mulls property sales

See also: SkyCity CEO says convention centre could be delayed by six months if consents are non-notified

SkyCity Entertainment Group [NZX: SKC], the listed casino company, says group revenue is up 17.9% to $415.6 million for the second half of the 2015 year-to-date, accelerating from the pace of sales growth posted in the first half.

The Auckland-based company provided the trading update as part of an investor presentation today and attributed the revenue rise to strong growth in its international business, which has had a 63% turnover boost in the second half of the 2015 financial year to $8.62 billion. The rise in international business reflected an improved win rate of 1.37% compared to 1.12% in the previous corresponding period.

The shares rose 0.9% to $4.39 and have gained 12% this year. The stock is rated an average 'hold' based on 11 analyst recommendations compiled by Reuters, with a median target price of $4.15.

SkyCity said it was expecting a "step-change in earnings delivered" from two major projects, the NZ International Convention Centre in Auckland and expansion of its Adelaide casino in Australia.

Chief financial officer Rob Hamilton said it was also exploring various options to fund major projects and reduce its reliance on debt. Outstanding debt is currently sitting at $696 million – including $399 million of bank debt – and it has unused debt funding of $190 million that it expects will meet funding requirements out to the start of the 2018 financial year.

Mr Hamilton said funding options for the projects include partnering with external investors to develop or own the Hobson St hotel in Auckland, other property-related options which are mutually beneficial for SkyCity and investors, and potential divestment of the Federal St carpark, which is expected to be worth about $40 million.

SkyCity estimated the total project cost of the redesigned and smaller International Convention Centre project to be between $450-470 million , down from the earlier $530 million estimated last December.

The group has already invested $113 million, mainly in land, and has an estimated future capital commitment to complete the development of between $430-450 million.

Gaming concessions negotiated with government as part of the deal kick in as soon as it signs the building contract. Resource consent is now being sought from Auckland Council following approval of the new design and construction is expected to start later this year with completion expected in early 2019.

SkyCity said plans to activate the gaming concessions, worth an estimated $458 million by KordaMentha, are well advanced and split into two stages. In the first stage 70% of the new product will be on the existing gaming floor within three months of signing the building works contract, with only minor short-term capital works required. The extension of its Auckland venue licence, worth an estimated $75 million, is effective immediately. The group also has certainty on gaming taxes remaining at an existing rate for at least the next seven years.

Both the NZICC and Adelaide expansion are expected to increase the value of the group's property assets, which currently have a market value of $1.39 billion, compared to a book value in March this year of $890 million. That represents 43% percent of SkyCity's enterprise value of $3.25 billion.

Auckland remains the bedrock of group earnings, generating  70% of group earnings before interest, tax, depreciation, and amortisation. Its normalised revenue including international business and gaming GST is up 14.5% to $247.5 million for the second half of the year-to-date. Queenstown also showed a strong uplift with an 83.8% rise to $10.4 million.

Chief executive Nigel Morrison said Adelaide was now showing clear signs of recovery since the major refurbishment with normalised revenue up 5.2% to $60.1 million, while Darwin continues to experience challenging trading conditions.

The company is now finalising plans for an expanded casino and six-star hotel in Adelaide with preparatory works due to begin at the end of this year.

(BusinessDesk)