NEW ZEALAND

Management sees clear skies, analysts more cloud

SKYCITY Entertainment CEO Graeme Stephens is optimistic about the group’s prospects, helped by expansion in Auckland, a planned venture into online gaming and a rebound in international VIPs, although analysts remain cautious.

New Zealand’s only listed operator posted record profit of NZ$170 million ($113 million) for the 2017/18 financial year. The company improved its operational performance at all its properties, with a 39 percent jump in international business to $11.9 billion ($7.9 billion).

Stephens said he was “really pleased” with the result, which was a record for the company both in terms of operating earnings and net profit. He told AGB that the result was probably a bit better than either the market or the company had expected.

“I’m particularly encouraged by both the strong rebound in our international business and a return to earnings growth in Adelaide and Darwin on a like-for-like basis.”

Karl Williscroft, an analyst at Craigs’ Investment Partners said the results were solid and “well-received” by the market, with the share price moving higher.

He said the results were driven by a good last quarter from the international business, but also a stronger-than-expected showing from Auckland and Adelaide electronic gaming machines, and a good second-half performance in Hamilton and Queenstown.

Despite the strong results, SKYCITY doesn’t appear to have won over market analysts.

Some have questioned the company’s reliance on casino and hotel operations in Auckland, with Craigs’ writing in a research note earlier this month, that “other than good international business performance there appears to be few catalysts (to growth) in the medium term. We think the market will want evidence of project upside before these are factored into the share price.”

Stephens rebuts this assessment saying that analysts typically had a short term focus aimed at driving sales while the company was clearly focused on the creation of medium and long-term value.

“I’d point to the long term nature of our licences and exclusivity, which make us a stock which has significant downside protection. Our shareholders would prefer us not to risk this in pursuit of short term upside.”

The company regards both the opening of the NZ International Convention Centre in Auckland in early 2020 and the completion of the Adelaide Casino expansion later that same year as two medium-term catalysts for the growth of the company.

“In terms of the immediate future, I’d say SKYCITY offers modest growth and relative share price stability with a good dividend in an industry that can still be expected to grow.”

He told AGB that “the hotel sector offers good opportunities for the company to incrementally grow its earnings within Australasia and I’ve made it clear SKYCITY is interested in partnering with others in this area to expand the properties we have not just in Auckland, but in Hamilton, Queenstown, and Adelaide as well.

“We’re also working on a number of non-gaming, family-friendly entertainment opportunities on Federal Street in Auckland, which will expand our appeal and diversify our revenue base, and I should have more to say about those in the coming months.”

The Darwin business is up for sale and the company has received indicative bids above book value. “A couple of companies have been through and done their due diligence, Stephens said. He wouldn’t give numbers except to say that there were more than two bidders involved.

He said he was relaxed about “whether or not we sell the Darwin property.”

“I’ve always said it would have to be to the right bidder at the right price. This is certainly not a crisis sale – Darwin remains a quality, cash-generative operation for SKYCITY and if the sale doesn’t happen then I’m entirely comfortable with that.

“But we’re still going through the process, although I can honestly say I don’t know how it will turn out, we should have an answer within the next two months.”

Excluding international business, Auckland’s casino accounts for 90 percent of the casino EBITDA, earning $261 million of the total $289 million across the group.

Profits from the other five licences held by the group in Hamilton, Queenstown (two licences), Adelaide and Darwin are miniscule, although all the licences improved earnings apart from Darwin, which was affected by having three Keno 10 jackpots in the year compared with none the previous year.

Other factors considered important are that there have been significant changes at both the board and management level. The two parties now seem to be in greater accord, and the group strategy has been “refreshed”, and new in-house initiatives adopted.

The “capital lighter” approach is one example. The car park in Auckland’s Federal Street has been sold: the company is looking to sell more car parks in Auckland and around its Adelaide operation.

The two casinos in Queenstown will be upgraded to enhance the visitor experience, and a contract has been let for the redevelopment of the Adelaide hotel and casino with 90 percent of the $330 million investment being covered by a fixed price contract.

Among other changes are a much stronger emphasis on corporate social responsibility, what Stephens calls its “social licence” to operate, and on environmental issues and people and culture.

Anti-corruption probe snares harness racing

Eleven people have been arrested and charged with race fixing and drugs offenses as part of an anti-corruption probe into the harness racing industry.

Those detained variously faced race fixing and drugs charges and were remanded on bail. In addition to the arrests, the Racing Integrity Unit has exercised its statutory powers to prohibit all those charged with offenses from entering any race course or taking part in any on-track activities.

The investigation has roped in the New Zealand Derby, one of the richest races on the New Zealand harness racing calendar.

Pokies clubs agree to one-hour pause

Pokies in New Zealand agreed to ‘pause’ for one hour during Gambling Harm Awareness Week, held from September 3-9, 2018.

Over 70 pubs and clubs in the country agreed to be part of the ‘Pause the Pokies’ initiative, coordinated by the Problem Gambling Foundation (PGF), Mapu Maia (Pacific Counselling Service), and Asian Family Services in New Zealand.

“We are hoping that pausing the pokies will also allow gamblers to think about their gambling and it may lead to people seeking help from a local service if they are experiencing harm or know someone that is,” said Andree Froude, Director Communications at the Problem Gambling Foundation.