EUR 850.00 For Business Accounts Only

Morningstar | SkyCity Entertainment's 1H Performance Tracking Ahead of Expectations

Narrow-moat-rated SkyCity Entertainment finished the first half of fiscal 2019 better than expected on the back of strong performance in Auckland and international VIP business. This is a pleasing outcome, and management guided to interim 2019 normalised EBITDA of NZD 189 million and NPAT of NZD 97 million, up around 10% and 11%, respectively, on the prior year.

The company cautioned that earnings growth will be harder to achieve in the second half, given the strong comparable period, although we are unconcerned about this. Despite the more challenging second half, SkyCity expect the full year to exceed previous guidance for modest growth in normalised EBITDA. As such, we have lifted our fiscal 2019 EBITDA estimate by around 3%, to NZD 360 million, which implies 6% growth year on year. Our long-term projections are broadly unchanged, and we project mid- to high-single-digit EBITDA growth on average during the next five years, which includes forgone earnings on the sold Darwin property, which we assume occurs during fiscal 2019. We retain our NZD 4.20 fair value estimate, although our Australia-based fair value estimate rises by AUD 0.20 to AUD 4.00 per share, reflecting the 1.05 Australian dollar/New Zealand dollar spot rate.

We continue to believe SkyCity shares are slightly undervalued at current levels. The current price offers shareholders an attractive 5% dividend yield, fully imputed for New Zealand tax residents. Additionally, we are attracted to the company’s portfolio of monopoly casino licences, which underpins its narrow moat rating. The long-term outlook for Auckland remains positive, with the new convention centre likely to be a driver of foot traffic and revenue growth upon completion within the next 12 months.