Challenges for SkyCity

Goldman Sachs analysts Adam Alexander and Nick Basile issued a report on SkyCity last month after meeting Stephens. Among their findings:

Existing opportunities

“There is enough to do in the current portfolio. Having recently toured the SkyCity properties, Mr Stephens was encouraged by the opportunities that exist within the current portfolio, citing his initial focus will be on improving operations across the group’s key properties of Auckland and Adelaide,” the analysts wrote.

Adelaide update

“A decision on the Adelaide hotel and associated gaming concessions is arguably the most pressing issue for the group. In the meeting Mr Stephens reiterated that negotiations with the [ South Australian] Government are in the final stages. “As part of the negotiations SkyCity is asking for a number of concessions that would allow greater utilisation of the premium gaming areas within the casino ...” The report describes SkyCity Adelaide as Australia’s worst performing casino, but also notes A$ 300m in spending plans. “Despite the modernisation of the premium gaming areas, the venue remains severely hampered by the lack of car parking and restrictive gambling regulations . . . In our view the property is currently operating well below its ultimate potential.”

VIP market

“The VIP business at Sun International was only in its infancy with the programme having been introduced by Mr Stephens. The existing internal business programme at SkyCity is larger and requires more focus.”

Capital structure

“We note Sun International was run with higher gearing than SkyCity, however Mr Stephens commented that he was comfortable with SkyCity’s current gearing levels.”