Political risk to convention centre deal: analyst

David Cunliffe is under pressure to reveal whether a Labour-led Government would scrap National's convention centre deal. Photo / Marty Melville

A senior equities analyst has raised questions about Labour potentially scrapping SkyCity Entertainment Group's $402 million convention centre.

Nachi Moghe of Morningstar Research in Auckland cited the topic, following reports of Labour leader David Cunliffe coming under pressure to reveal whether a Labour-led Government would scrap National's pokies-for-convention-centre deal with SkyCity.

Cunliffe would not confirm that Labour would change the legislation.

Moghe said political moves needed to be examined as a potential risk.

"I think there is a small risk of the convention centre deal being rescinded but that will entail a huge sovereign risk. If the contract was set aside, then SkyCity will lose the upside from the Auckland expansion," he said.

Legislation enabling the centre to be built is expected to go through Parliament in the next few weeks.

"If that passes, then SkyCity will work with the design teams and Government in hashing out the plan for the convention centre, and once that's finished they will seek resource consents," Moghe said.

"So, in effect, they won't be starting work on the project before the next election, which is in November next year, and they will therefore know how the land lies before committing to the project.

"So in that sense they are protected," he said.

The Herald has reported that Labour's view on the bill, included in the commerce committee's report, noted advice from officials that the legislation - including provisions for SkyCity to be compensated if any regulatory concessions were removed - could be amended in future.

The report also says Labour MPs "reserve the right to change the law when in government".

Moghe had concerns about the risks but said all SkyCity had done so far was to buy the large block of inner-city land, which had gone up in value and had been a good investment.

After this month's annual meeting, Moghe said the company's performance in the June 2013 year was subdued, and the significant appreciation of the New Zealand dollar versus the Australian dollar did not help.

"We are, however, sticking to our fiscal 2014 and fiscal 2015 profit forecasts of $135 million and $154 million respectively," he said.

"Our fair value estimate also remains unchanged at $4.60 per share. However, we are raising our Australian dollar fair value to A$4.10 [$4.73] per share from A$3.60 per share, reflecting the depreciation of the Australian dollar.

"We believe SkyCity's shares are undervalued, with favourable risk/reward characteristics, and feel that the market is not pricing in the upside from the expansion of Adelaide and Auckland casinos," Moghe said, putting an accumulate rating on the stock.