SkyCity result gets negative market reaction

SkyCity's annual result was not greeted with delight today. Photo/ Richard Robinson.

Analysts and investors remained downbeat about SkyCity Entertainment Group's record $1.1 billion revenue and $145.7 million net profit after tax indicating it was below expectations.

Adam Alexander and Kane Hannan of Goldman Sachs Australia said the June 30, 2016 annual figures were "overall a weaker result than we had forecast with revenue (ex-GST) of $985 million (-2.9 per cent vs Goldman Sachs' expectation) and EBITDA $330.1 million (-4.4 per cent vs Goldman expectations) with a slowdown in trading notable in the final two months of the year.

"In particular this seems to be most acute in two areas: domestic main gaming floor and non-gaming revenues in Adelaide/Darwin/Hamilton/Queenstown; and VIP turnover in Auckland/Darwin, noting VIP can be volatile month-to-month i.e. VIP turnover in Adelaide/Queenstown was stronger in the final two months," their note said.

Shane Solly of Harbour Asset Management noted how the share price had fallen 4.7 per cent today and no trading update had been given for the first half of the June 2017 year.

"The result was below expectations, with revenue lower and costs higher," Solly said.

Mark Lister, Craigs Investment Partners head of private wealth research, echoed that.

"Looked a bit disappointing to us. Auckland was below our expectations, as was Adelaide. The Auckland performance is a bit surprising, particularly given the strength of the economy. Things look to have slipped over the last few months. The share price is down, unsurprisingly. I suspect this is a combination of a good run going into the result, the disappointing numbers from some assets, and the likelihood of analysts paring back their 2017 profit numbers as a result," Lister said.

Paul Turnbull, First NZ Capital equity research director, also raised negative points.

"The rate of growth for non-international business revenue at SKC Auckland slowed to 4.4 per cent in the final two months of 2H16. This compared to a growth rate of 9 per cent in the four months to April 2016. We attribute the slowdown at least in part to cycling a strong comparative period that included the FIFA Under 20 World Cup. After recording strong growth in recent periods, local table revenue declined 0.7 per cent in 2H16 vs pcp despite concession benefits that included a 23 per cent increase in product capacity across the period," Turnbull's note said.

John Mortensen, SkyCity interim chief executive, expressed satisfaction with the result as well as confidence in the current year.

"The year ahead is about maintaining the momentum and we're pretty positive, casting our eye 12 months out, specifically New Zealand and in Australia we have got strategies in place that will continue but the economic conditions we're operating in are going to be constraining," Mortensen said.

The Melbourne-born Mortensen, who stepped in after Nigel Morrison's resignation, was upbeat, citing record figures and forecasting new development work to finally begin in Adelaide after many years of planning.

But he could give no timing on a CEO appointment.

"The international search for a chief executive is still ongoing and I believe it's close to being down to a short list process. The board are in control of it," he said.

SkyCity declared $44.1 million corporate costs including $2.9 million from Morrison's resignation, $500,000 on its attempt to sell the yet-to-be-built Hobson St hotel project, $2 million Adelaide restructuring costs and $900,000 brand project costs.

Mortensen said construction work on the $700 million NZ International Convention Centre site was on track: "We're taking 200,000 cubic metres out. It's a big sandpit," he said of earthworks there.

SKYCITY ENTERTAINMENT GROUP

• Revenue $1.1b/$1b
• Expenses ($665.8m) ($613.4m)
• EBITDA $333.9m/$304.1m
• Net profit before tax $197.3m/$170.8m
• Net profit after tax $145.7m/$128.7m
• Final dividend 10.5cps/10cps
2016/2015 (years to June 30)

Read SkyCity's full result here: