Investors deal to SkyCity after annual profit slumps

2017

Investors punished shares in SkyCity Entertainment as analysts expressed disappointment with the company’s full-year result.

Chelsea Leadbetter of Forsyth Barr said the result was “modestly below our expectations”.

Hamilton had performed stronger than expected while Adelaide was weaker, Leadbetter said.

Outlook statements indicated SkyCity was expecting modest growth in 2018, with an increase in New Zealand and international business offset by weakness in Darwin and higher corporate costs, she said.

Mark Lister, head of private wealth research at Craigs Investment Partners, said the result was “not terrible but certainly softer than expected”.

“The company seems to have finished the year in a pretty sluggish fashion. The international business looks weaker than expected and not a lot to get excited about from the Australian operations either,” Lister said.

“Earnings per share are down 9 per cent, dividend down 5 per cent,” he said.

“The market is, unsurprisingly, a little disappointed and the share price has been sold off slightly.”

The company’s shares traded as low as $3.90 yesterday, eventually closing down 15c, or 3.66 per cent, at $3.95.

Shane Solly of Harbour Asset Management said the result was below broad expectations, while Paul Turnbull of First NZ Capital said it was slightly disappointing at an earnings before interest, tax, depreciation and amortisation (ebitda) level.

SkyCity posted net profit for the year ended June 30 of $44.9 million, down 69.2 per cent on the previous year.

However, the NZX-listed company said normalised net profit after tax was $154.6m, up 1.3 per cent.

“Reported NPAT was down 69.2 per cent to $44.9 million, primarily due to a A$95 million impairment of Darwin goodwill following an annual impairment review,” the company said.

“Reported ebitda was down 8.1 per cent to $307.0 million and reported revenue down 7.2 per cent to $1.02 billion.”

Darwin is facing increased competition from pubs and clubs and a difficult economic environment in the Northern Territory, the company said.

Law changes meant gaming machines at other Darwin properties had risen 75 per cent since 2015, SkyCity said.

SkyCity CEO Graeme Stephens said revenue was down because international business revenue had dropped 42 per cent and 2016 had been such a strong year.

“The market was expecting this sort of result,” Stephens said, although June trading conditions had been tougher than anticipated.

Darwin’s writedown was “an accounting entry, neither here nor there.

“I’m not too fussed by that to be honest.”

SkyCity wanted to extract more value out of Darwin “without putting more money into it and without selling it”.

Options included developing adjoining vacant land which the company owned but cannot develop until next year, Stephens said, indicating a hotel joint venture with a developer was one possibility.