UPDATE: SkyCity result mixed, analyst say

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UPDATED: SkyCity Entertainment Group [NZX: SKC], New Zealand's only listed casino company, posted a 31% rise in annual profit as an improved win rate for its international business and strong growth in Auckland made up for a lacklustre performance in Australia.

Profit increased to $128.7 million, or 22c a share, in the year ended June 30, from $98.5 million, or 17c, a year earlier, the Auckland-based company said in a statement. Sales rose 12% to $1 billion. SkyCity also provided 'normalised' figures, to reflect the performance of its underlying business, which showed revenue rose 8.7% and profit rose 8.8%.

SkyCity, which has four casinos in New Zealand and two in Australia, benefited from an improved performance in Auckland, which accounts for 84% of earnings, as profit fell in Adelaide and Darwin. Revenue from its international business, the term it uses for 'high roller' gamblers, more than doubled.

"It was a mixed result. Auckland was strong as expected, while Adelaide and Darwin were a little concerning," said Matthew Goodson, who holds SkyCity shares among the $700 million he helps manage at Salt Funds Management. "Overall, the result was in line to slightly below expectations. They have spent a lot of money at Adelaide and the earnings aren't really coming through at this point as one would hope. Darwin is just a little soft as well."

He said both Adelaide and Darwin are exposed to Australia's resource sector, which is being hurt by a slowdown in demand from China.

"The key is to get Adelaide working a lot better," Mr Goodson said. "They have spent a lot of money on redevelopment there and they really do need to see better results. The key is the pubs and clubs in that market have very significant market share and they have to get people out of them and into the Adelaide casino."

SkyCity Auckland increased earnings before interest and tax by 13% to $180.4 million as revenue rose 10% to $473.7 million and expenses gained 8.5% to $245.5 million.

The company said it had focused on keeping a lid on costs at its Auckland business, which ensured margins were maintained despite strong growth in international business, local tables and food and beverages. Auckland's economy has been boosted by record migration and rising house prices and the company said it continues to benefit from positive external influences that are supportive of sustained growth over the medium term.

"We know the Auckland economy has been booming, so you certainly would have expected them to deliver a strong result there," Mr Goodson said.

The Auckland business is expected to start benefiting from $458 million worth of gaming concessions granted by the government by the end of this year which were agreed as part of a deal for it to build an international convention centre. It expects to sign the building works contract by October and start construction by the end of this year, it said.

In Adelaide, the company's second-largest property by revenue, ebit dropped by two-thirds to $6.9 million as 9% growth in expenses to $129.1 million outpaced a 1.2% increase in revenue to $152.3 million.

The company said its Adelaide business was affected by refurbishment work, which was completed in January, as well as flat local gaming revenue, consistent with other pubs and clubs in South Australia, and higher operating costs, which pushed down margins to 15.7% from 20.3% the year earlier on an earnings before interest, tax, depreciation and amortisation basis.

Chief executive Nigel Morrison said Adelaide had had only four months in the last financial year that weren't affected by refurbishment work and Adelaide showed some positive trends in the fourth quarter with higher visitation and improved ebitda margins as the company eked out efficiencies.

In Darwin, ebit declined 1.2% to $26.7 million as revenue slipped 5.8% to $123.2 million while expenses dropped 8.4% to $82.7 million. The company said Darwin achieved a "satisfactory" result despite "a challenging local market."

SkyCity's other New Zealand businesses, located in Hamilton and Queenstown, increased ebit 15% to $16.4 million.

The company said its international business for high rollers posted ebit of $29.9 million, compared with a loss of $2.3 million a year earlier, as revenue more than doubled to $112.1 million from $55.8 million, while expenses rose 42% to $82.2 million. It said the win rate of 1.36% in the year was broadly in line with the theoretical win rate of 1.35%.

Meanwhile, local gaming revenue increased 3.8% to $592 million, while non-gaming revenue gained 9.2% to $212 million.

The company said trading in July showed "a continuation of the momentum" seen in the second half of the 2015 year, with "strong performances" in Auckland, Hamilton and international business.

SkyCity said it currently has enough debt funding to meet expected funding requirements until at least the start of 2018 but is continuing to investigate a potential New Zealand retail bond issue following the repayment of capital notes in May.

The company will pay a final dividend of 10c a share on Oct. 2, unchanged from the year earlier.

The shares last traded at $4.29 and have gained 11% this year.

(BusinessDesk)

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