Daily ShareChat: Sky City Entertainment

By Jenny Ruth

Thursday 14th May 2009

Sky City Entertainment Group's about $216 million capital raising and its comments about its outlook send mixed messages, says First NZ Capital analyst Rob Bode.

"We are a little bemused by the mixed messages sent by Sky City at present," Bode says.

"On the one hand, Sky City comments that trends are encouraging but, on the other hand, Sky City is also cautious regarding recent performance, particularly with respect to the Auckland property where most value lies."

While he continues to like the company's positioning and the strong cashflow attributes of key properties, "in our view this placement does start to raise questions about the earnings outlook for 2010," he says.

He sees no apparent near-term use for the funds raised "which may for some time, at least, be invested in low-yielding bank deposits unless Sky City can opportunistically redeem long-dated debt at a decent discount."

Nevertheless, he regards the underwritten placement price of $2.52 per share as good value, "particularly given that the placement will bring enhanced financial strength and flexibility which should widen the investor appear of Sky City's equity."

Bode has cut his discounted cashflow valuation by 20 cents a share to $3.55, the same as his 12-month price target.

BROKER CALL: First NZ Capital rates Sky City Entertainment (NZX: SKC ) as OUTPERFORM.

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