Analysts are wondering about SkyCity Entertainment Group's plans to expand its Adelaide property after today's half-year result was released with new information saying the Australian plans were "under consideration by the board".
Craig Lindberg of Craigs Investment Partners and Peter Turnbull of First NZ Capital both raised the issue in notes following the result released to the NZX this morning.
"Proposed expansion project remains under board consideration and is likely to be a review point for the incoming CEO and Adelaide GM," wrote Lindberg on the issue, referring to SkyCity's new incoming chief executive Graeme Stephens and its new Adelaide general manager Luke Walker.
Turnbull was also curious: "Comment within the presentation that the 'proposed expansion of Adelaide Casino remains under consideration by the board'. We will need clarification on this comment however if we are correct in interpreting it as SKC are less committed to the project than previously, then we would view this as a positive."
SkyCity's presentation today said: "Early works programme for the Riverbank Precinct has commenced. Expectation is that the early works will be completed by late 2017. Proposed expansion of Adelaide Casino remains under consideration by the board."
The business had huge plans for Adelaide, spending up to A$300 million building a huge new block with hotel accommodation.
However last year analyst Adrian Allbon of Deutsche Bank Equity Research questioned debt levels, with the Adelaide plans sitting alongside SkyCity's $700 million NZ International Convention Centre project in Auckland.
He pointed to debt levels rising substantially by the 2019 financial year, estimating the company's net debt could be nearly three times earnings before interest, tax, depreciation and amortisation (ebitda) by 2019.
In today's result, SkyCity's New Zealand performance improved but its Australian operations did not show the same gains, according to its financial result released today.
Net profit rose to $83.8 million, or 12.7 cents per share, in the six months ended December 31, from $71m, or 12 cents, a year earlier.
The year-earlier earnings included a $2.8m write-down of its Hamilton hotel project costs and $7.6m write-off of its Auckland property to make way for a convention centre.
In the latest period, revenue slid 5.8 per cent to $533.m.
SkyCity, which has four casinos in New Zealand and two in Australia, posted a 5.1 per cent gain in earnings before interest, tax and depreciation and amortisation (ebitda) at its Auckland casino, which accounts for the bulk of its earnings.
However, its Australian business, which includes casinos in Darwin and Adelaide, reported a 9.5 per cent earnings drop. Its international business, the term it uses for 'high roller' gamblers, was hurt by Chinese restrictions on funds transfers and reduced visits by big-spending customers, with earnings down by more than two-thirds.
"The main drivers of the 1H17 performance were solid growth in our combined New Zealand properties, with Auckland trading improving significantly in 2Q17, offset by reduced turnover in our international business, continued competitive and economic pressures in Darwin and a weaker Australian dollar," the company said.
"SkyCity Auckland, which accounted for approximately 80 per cent of group ebitda in the interim period, is expected to continue to deliver modest growth during the second half of FY17 on the previous corresponding period, driven by favourable macroeconomic drivers, new major events and ongoing initiatives to drive visitation."
Lindberg said: "Overall a mixed operating result, with quality always difficult to accurately assess on first take given the various adjusts and capitalised costs etc. On the plus side, Auckland has returned to growth in the second quarter and Hamilton continues to trade well. On the negative side, international business de-leverage has been material and the Australian properties continue to trade poorly and in difficult macro/competitive climates."
SkyCity said challenging trading conditions would persist in Darwin during the second half due to a soft local economy and increased gaming machine numbers in pubs and clubs, while Adelaide would likely remain stable.
Second-half activity was likely to be weaker in its international business due to reduced visits from larger VIP customers, although trading had been favourable over the Chinese New Year period to date, it said.
The company will pay a first-half dividend of 10 cents a share on March 17, down from 10.5 cents a year earlier.
The shares last traded at $3.74, and have slid 4.8 per cent so far this year.