Daily ShareChat: SkyCity

Sky City is well-placed to capitalise on the Rugby World Cup and will see a one-off spike in earnings in its next financial year because of it, says Nachiket Moghe, an analyst at Aegis Equities Research.

"Management expects EBITDA (earnings before interest, tax, depreciation and amortisation) to grow by 20% to 25% in the first-half of the financial year, driven by 30% growth in non-gaming businesses like food and beverages and hotels," Moghe says.

Sky City is currently spending $40 million on improving its Auckland gaming floor ahead of the cup to capitalise on the likely rise in tourist traffic and the gaming business is expected to increase by 13%.

Currently, the Auckland casino has only one VIP salon and the company wants to grow this to four salons over the next few months.

"Our financial year 2012 net profit after tax of $155 million is predicated on these assumptions," Moghe says. That will represent 20% growth on net profit for the year ended June 2010.

"Auckland constitutes around 60% to 65% of group EBITDA. Other New Zealand properties at Hamilton and Queenstown are also expected to be up significantly," he says.

Moghe's fair value of the shares is $3.80, based on 15 times normalised earnings of 25 cents per share.

Recommendation: Hold.

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