Daily ShareChat: Sky City Entertainment

By Jenny Ruth

Tuesday 28th July 2009

Sky Cty Entertainment Group's earnings upgrade is driven by a strong fourth quarter performance from all casino operation and a higher second-half contribution from its cinema operations, says Goldman Sachs JB Were analyst Marcus Curley.

Last week, the company upgraded its expected net profit for the year ended June 30 from between $99 million and $106 million to between $113 million and $116 million.

Although only limited details were provided, the second-half operating profits growth of about 9% suggests a substantial turn-around of the Adelaide casino coupled with substantial benefits from the expansion and refurbishment of both the Auckland and Darwin casinos.

"We believe this only represents the start of a substantial re-rating for Sky City," Curley says. "In particular, we continue to see significant valuation upside created by strong underlying earnings growth in both 2010 (from Darwin casino expansion) and 2011 (from a cyclical recover in New Zealand household expansion)."

He says investors receive an attractive 2010 cash dividend yield of 5%, 2010 free cashflow yield of 9% and a free option over any future mergers and acquisitions activity.

"On our estimates, Sky City remains the cheapest gaming stock in Australasia." Curley values Sky City shares at $4.15.

BROKER CALL: Goldman Sachs JB Were rate Sky City Entertainment (NZX: SKC ) as Buy.

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