SkyCity Entertainment Group has suffered a $1 billion hit to its NZX market capitalisation from Covid-19 and might soon suspend dividends and raise new capital, an analyst says.
Chelsea Leadbetter, of Forsyth Barr equity research, said that although the business was strong, the pandemic had dealt it a major financial blow and shareholders could soon feel the effects.
"SkyCity's market capitalisation has fallen by around $1b since the Covid-19 outbreak took hold in China. While we acknowledge material near-term risks, this is substantially larger than our various scenarios of the risk/cashflow impact," she wrote in the latest update on the stock.
Under the Work and Income wage subsidy scheme, SkyCity Management got $21.7m for 3272 employees, as of May 3.
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Leadbetter said: "We expect the key near-term causality for investors to be a temporary dividend suspension." She forecast that no dividends would be paid from the second half of the 2020 financial year or the first half of the 2021 financial year.
Like many others, the company might seek new cash: "There is also a possibility the board decides to raise equity to shore up the balance sheet through this period of heightened uncertainty."
SkyCity is today trading on the NZX around $2.45, down from more than $4 late last year. Today its market capitalisation stood at $1.6b.
Questions were today put to chief executive Graeme Stephens and chief marketing officer Liza McNally about the fall in the company's market capitalisation, the possibility of suspending dividends and raising new capital.
McNally said: "As previously disclosed, SkyCity currently has sufficient liquidity, and has already implemented a range of changes to reduce both operating costs and capital expenditure, to withstand the short term impact of Covid-19. The board and management are continuing to evaluate SkyCity's longer term funding requirements and a range of options for satisfying these."
Leadbetter noted property assets of around $2b and long-term monopoly casino licences.
"However, like the majority of businesses it has been caught out by extraordinary circumstances. Forecasting earnings is near impossible in the near-term. However, when we are out the other side of Covid-19 we expect gaming spend to recover which will improve Ebitda, gearing, and enable reinstatement of what was an attractive dividend," she said.
Early last month, SkyCity announced that about 200 staff would be made redundant and wages were cut by 20 per cent to cope with the pandemic's effects on the business.
Last Friday, SkyCity said all its properties here and in South Australia remained shut at level 3 alert but construction work banned under the almost five weeks of level 4 had resumed.
• Work at the fire-hit NZ International Convention Centre and neighbouring Horizon Hotel in Auckland
• Refurbishment of premium gaming rooms on levels eight and nine of the Auckland casino
• New food and beverage venues Food Republic adjacent to the main casino floor in Auckland
• Work on Aces Bar and creation of a new entertainment zone on the main casino floor in Auckland
• Ongoing refurbishment and maintenance works on the AA Building where the business is now headquartered on Albert St
• Refurbishment of Hamilton's main casino floor, including a new Baccarat area
• Work on the development of the All Blacks Experience and Weta Workshop attractions in Auckland's former convention centre below the SkyCity Grand Hotel
SkyCity also gave an update on its funding position, saying it continued to have a strong liquidity position with about $400m cash and undrawn debt facilities available.
It does not expect to need any waivers for its June 30 debt covenants.
"Following recent restructuring initiatives, SkyCity's operating cash requirements before re-opening any properties are around $12m per month. SkyCity also has significant ongoing capital expenditure commitments on its two major projects and other smaller development projects in Auckland and Hamilton," it said, referring to its $703m convention centre and $330m Adelaide redevelopment and expansion.
The business is working on a funding plan for the medium term as it recovers.
"This plan will be finalised once the trading performance of its New Zealand properties has been assessed following the expected re-openings by the end of May," the business said on May 1.
Leadbetter said when New Zealand moves to level 2, most SkyCity properties will be re-opened but with significant restrictions. At level 1, all facilities will be back open, without restrictions.