SkyCity holds winning hand, say Oz analysts

SkyCity chief executive Nigel Morrison wants the Auckland casino to cater for international gamblers, especially those from Asia, who do a circuit of major Australasian casinos. Photo / Glenn Jeffrey

SkyCity's controversial expansion plans have not dented its share price - nor the view taken of the business by three Australian-based professional investment experts.

Not only are analysts picking better fortunes for the gaming business, but their latest market research out this month on four ASX- and NZX-listed gaming industry businesses showed they had rethought the longer-term outlook for SkyCity's earnings.

They picked it as the best performer on a profit revision basis, piling on more money than the other three.

Shares are still rising despite the business suffering a backlash against its $350 million offer to build an international convention and exhibition centre in Auckland's Hobson St in return for Government permission to have more gaming machines.

The company, with a market capitalisation of $2.2 billion, is trading at $3.81, below its $4 two-year high but well above the $3.30 of last November.

Deutsche Bank Markets Research's Mark Wilson, Daniel Pi and Anthony Hanna revised up their SkyCity earnings estimate forecasts by 2 per cent, the highest for any of the Australasian stock exchange-listed gaming businesses.

Instead of making $145.4 million net after-tax profit in 2012, $150.7 million in 2013 and $164.9 million in 2014, SkyCity will make $145.8 million, $153.6 million and $168.1 million, they predict.

They advise investors not to sell, issuing a hold recommendation on the stock because they believe it has good potential - although they have not gone as far as issuing a buy, which they have on the giant Melbourne and Perth Crown.

Some of the risks and rewards of buying shares in SkyCity are major capital expenditure projects with the benefits the business has gained from recent main gaming floor refurbishments, they say.

Changes to the regulatory environment, movements in the New Zealand and Australian dollars and changes to the New Zealand economy, particularly household disposable incomes, are also singled out for mention.

Auckland accounted for 60 per cent of the group earnings, they said, exposing the business to booms and busts in one area.

"SkyCity's earnings are sensitive to movements in the Australian dollar given the translation of earnings from the Adelaide and Darwin casinos," said the analysts, who used various financial metrics to give a favourable review of the business, benchmarking it against gambling rivals Aristocrat, Crown and Tatts Group.

Crown owns and operates two of Australia's leading gaming and entertainment venues: Crown Entertainment Complex in Melbourne and the Burswood Entertainment Complex in Perth.

Aristocrat Leisure makes and sells gaming machines and supplies gaming systems, table gaming equipment and other services for casinos, clubs and hotels. Tatts provides leisure and entertainment products and services to the Australasian gambling industry and has investments in overseas businesses.

Nigel Morrison, SkyCity's chief executive, has wanted to expand Auckland because he says international gamblers, particularly from Asia, do a circuit of major Australasian casinos.