SkyCity earnings to get kicker from Adelaide redevelopment

SkyCity chief executive Nigel Morrison speaks at the SkyCity Entertainment Group annual meeting in Auckland. Photo / Natalie Slade

SkyCity, New Zealand's only listed casino operator, faces a "benign earnings outlook" until the benefits show through from the redevelopment of its Adelaide casino complex in the 2017 financial year, according to Deutsche Bank/Craigs Investment Partners.

SkyCity is betting on a redevelopment of its Adelaide casino, which would enable higher spending limits for some of its gaming machines as well as reduced taxes and access to an adjacent hotel, to drive future earnings.

"Inclusion of Adelaide redevelopment into forecasts provides a long-term source of genuine earnings growth," analysts Arie Dekker, Daniel Pi and Mark Wilson said in a report. "Earnings contribution (is) expected from FY15 but not meaningful until after FY17 when the redevelopment is complete. In the meantime, Sky City's earnings outlook remains benign and we are not expecting any growth in FY14."

Shares in SkyCity were the best performer on New Zealand's benchmark NZX50 Index today, up 3.8 per cent to a week-high of $3.80.

The report pulled back expectations for SkyCity's earnings in the current financial year, citing a patchy trading performance at its largest business in Auckland, the appreciation of the New Zealand dollar against the Australian dollar and more subdued growth from Asian gamblers.

The analysts reduced their profit expectations by 5.5 per cent to $131 million for the year ending June 30, compared with $127 million last year. They also pulled back their 12-month price target for the stock to $4.20 from $4.39, retaining their 'hold' recommendation.

They didn't include any value in their earnings estimates for the proposed Auckland convention centre, noting it still faced hurdles and heightened political risk heading into an election year.