SkyCity shares fall on lack of 'pizzazz' in annual earnings
By Rebecca Howard
Aug. 9 (BusinessDesk) - SkyCity Entertainment Group shares fell 3.9 percent after a tepid full year earning result, with investors predicting analysts will downgrade the stock.
The shares dropped as low as $3.90, a two-and-a-half month low, and were recently down 16 cents at $3.94 after the Auckland-based casino and hotel group today reported a 1.3 percent increase in normalised net profit to $154.6 million in the year ended June 30, while normalised revenue dropped 4.9 percent to $1.03 billion.
"It was just a bit mediocre. There was nothing that was absolutely, show-stoppingly terrible, but it wasn't great either," said Mark Lister, head of private wealth research at Craigs Investment Partners.
Lister said the result was slightly below expectations and investors were definitely disappointed by the company's muted outlook. SkyCity didn't give specific numbers for the current financial year but said it expects group earnings before interest, tax, depreciation and amortisation to "grow modestly" compared to the prior year.
He expects analysts to downgrade their forecasts overnight on the back of the result given the lower starting point and the comments around growth that suggest it will be a little bit more downbeat. The stock is rated an average 'hold' by nine analyst recommendations compiled by Reuters with a median target price of $4.15.
Matthew Goodson, managing director at Salt Funds Management, also expects analysts to publish lower forecasts for the 2018 and 2019 financial years after the sluggish result and outlook.
Auckland in particular, which accounts for which accounts for around 80 percent of group ebitda, was disappointing as "you couldn't have a better environment given the strength of population growth, the strength of the economy, tourism booming" and events like the British and Irish Lions rugby tour, Goodson said. SkyCity said capital works programmes across the city impacted access to its precinct but Goodson said overall it was "quite a disappointing outcome."
He also noted the company wasn't "aggressively selling a turn around" in the near term. "A lot of a casino is about pizzazz and entertainment and excitement - you are not getting a lot of that out of SkyCity at the moment," he said.
Brad Gordon, investment adviser for Hobson Wealth Partners, said investors were also questioning the outlook for the Australian business, given the large capital expenditure in Adelaide. SkyCity reiterated it has formally committed to proceeding with the Adelaide Casino expansion after inking a Development Agreement with the South Australian Government in July.
The casino operator opted to increase the size of the hotel, increasing capacity to 123 rooms, to reflect a strong demand outlook in Adelaide. It also reduced the reliance of the project on the international business. Total costs for the project have increased to A$330 million from a prior estimate of A$300 million.
Overall, "given the result also included the Masters Games and Lions Tour, which won’t be matched this year in terms of visitation, the growth was pretty ordinary," said Gordon.