Auckland makes big contribution to SkyCity profit jump

Food Festival in Federal Street, Auckland. Events, restaurants and a booming economy are behind an expected 30 percent jump in Sky City half year profits.

Auckland's strong economy and the booming tourism and retail sectors are all being cited as some of the major reasons for SkyCity Entertainment's forecast of a first-half profit rise of up to 30 per cent.

Jeremy Simpson, Forsyth Barr senior equity analyst and research director, said this morning's announcement from the NZX giant had surprised on the upside.

"It looks like a good start to the year, stronger than we were going for. We were expecting a good half-year, given what's happening in Auckland with a strong economy, lots of events, strong tourism, a busy casino, good restaurants. We've seen very strong reports come out from how busy tourism operators are. Retail statistics have been strong too, particularly during the Christmas period," Simpson said.

Forsyth Barr had forecast a 12.5 per cent increase in underlying annual profit but Simpson said that would now be revised after today's news.

"We will have a think about that," he said.

Other analysts are also expected to issue new data on the business which Simpson said had started the 2016 financial year particularly well.

SkyCity announced today that its interim result out on February 11 would reflect a strong six months to December 31, 2015.

The Auckland operating environment is as good as it gets which should help SKC get some early wins with its new gaming concessions, in particular the additional tables.

Jeremy Simpson, Forsyth Barr senior equity analyst and research director

"The expected 1H16 performance at both the EBITDA and NPAT levels is significantly up on that achieved in the prior comparable period. This is due to a combination of factors, including strong trading performances by all New Zealand businesses; strong growth in turnover in the international business, with turnover slightly above $7 billion for the period; significant cost savings achieved at the Adelaide Casino; and significantly lower funding costs (after deduction of capitalised interest)," its announcement to the NZX said.

Net profit after tax for 2016 first half-year is forecast be up 26 per cent to 30 per cent on the 2015 first half-year, it forecast.

In his report on SkyCity late last year, Simpson praised Auckland's solid performance, recovery in Adelaide, growth in international business and improved margins.

He also acknowledged Auckland's strong growth contribution.

"The Auckland operating environment is as good as it gets which should help SKC get some early wins with its new gaming concessions, in particular the additional tables.

However, the atrium redevelopment project has some disruption risk for FY16 and we remain cautious about the mature nature of the EGM market. There remains uncertainty with regard to SKC being able to leverage the large investment in Adelaide into gaming growth given the weak operating environment, lack of a car park until 2019 and the slow speed of development of a local premium EGM market," Simpson said in November.

The Auckland casino property is now being revamped, with the atrium getting a new escalator and entry and a new casual restaurant.

"Stage 2 completion is timed for a mid-2016 and comprises the extension of the main gaming floor into atrium space that is being partially infilled and a new high-end Cantonese restaurant," Simpson noted.