Daily ShareChat: Sky City Entertainment

By Jenny Ruth

Monday 27th April 2009

Casinos operator Sky City Entertainment Group's up to $220 million capital raising will provide it with an additional buffer should economic conditions deteriorate dramatically, says Morningstar Research.

It also puts to rest refinancing concerns Sky might have faced from 2010 and 2011 and the company also has $500 million in un-drawn debt facilities at its disposal.

Sky's pro-forma gearing at December 31 will fall to 31.5% from 39% should Sky raise the minimum $185 million. Morningstar says it doesn't think Sky's banking syndicate was concerned about Sky's gearing and its decision to raise equity may have been influenced by the slew of recent capital raisings.

"Net-net, raising capital in these uncertain times seems like a prudent strategy, even though it is probably 6% to 7% dilutive to prospective earnings," Morningstar says. The extra capital will mean Sky will be able to take advantage of acquisition opportunities as and when markets recover.

Based on management's comments operating conditions had improved since February, as well as lower interest costs, Morningstar raised its forecast net profit for the year ended June to $106 million from $103 million and its 2010 forecast to $125 million from $110 million.

Nevertheless, its discounted cash flow valuation fell to $3.40 from $3.75 and so it has downgraded its recommendation from "buy" to "accumulate."

BROKER CALL: Morningstar Research rates Sky City (SKC) as accumulate.

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