Daily ShareChat: Sky City Entertainment

By Jenny Ruth

Tuesday 1st December 2009

Any price Sky City Entertainment Group could have got for its cinema business, about to be sold for $59 million, "would have been a great price relative to our valuation," says ASB Securities analyst Florian Burch.

Simply discontinuing the cinemas business would add five cents a share to his $3.30 valuation and the proceeds from the sale adds another 10 cents, taking his valuation to $3.45, Burch says.

"Under our forecasts, even when taking into account further future improvements in profitability, the unit's high depreciation levels and therefore high long-run maintenance-capex requirements meant that the forecast free cash flows from the business failed to meet our estimate of the group's weighted average cost of capital," he says.

The sale doesn't include a number of assets, including the freehold and long-term leasehold land and buildings housing the cinemas in Fiji and New Plymouth, which management estimates could realise between $5 million and $8 million, or between 0.8 cents and 1.4 cents a share.

"The Fiji assets could prove challenging to sell in the tumultuous political environment there but the New Plymouth building, which also includes some tenanted shops, should readily attract a buyer," Burch says.

The sale will make Sky a pure casino business.

BROKER CALL: ASB Securities rate Sky City Entertainment as marketperform.

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