SkyCity's high roller upgrade

BY ANDREW JANES
Last updated 05:00 22/07/2009

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SkyCity's share price jumped 19 cents to $3.05 after it said it would easily beat market expectations in a recession-defying profit upgrade.

The casino, hotel and cinema operator said revenue had grown at all of its three big casinos in Auckland, Adelaide and Darwin in a strong second half.

"Obviously we've benefited from containing our costs while at the same time growing revenue and that's translated into margin across the businesses," chief executive Nigel Morrison said.

SkyCity said it expected an after-tax profit of between $113 million and $116m for the year to June 30. Earnings would be about $300m.

In April, SkyCity said it was comfortable with analyst expectations of a $99m to $106m after-tax profit. Adelaide had performed strongly in the second half, Darwin had a very strong period after April when a refurbishment was completed, and Auckland had begun to pick up about February or March, Mr Morrison said.

"Auckland started to improve in the third quarter and then had a pretty good performance in the fourth quarter."

SkyCity's $220m equity raising in April had also contributed through lower interest costs, he said.

The high roller business, whose turnover dropped by 16 per cent in the first half, had had double-digit growth in the second half, although since June it had been hit by a reduction in visitors from China because of swine flu fears. The result was a true one and not distorted by a high theoretical win rate.

Mr Morrison has been at the helm since March 2008 and has brought in a largely new senior management team.

Mint Asset Management portfolio manager Shane Solly said: "It's hard to make the call whether it's been the new management team or timing but you'd have to give the current management team the benefit of the doubt that they've certainly focused the business on the areas that increase returns."

Forsyth Barr analyst Jeremy Simpson said: "I think we can take from this that they are definitely gaining traction in Adelaide and Darwin.

"It's just a question of whether there's more improvement coming through in Auckland and I'd say there's a good chance they are getting some traction there now too."

Figures issued by the Internal Affairs Department last week showed that gaming machine expenditure in pubs and clubs had fallen 5.3 per cent in the year to June 30.

So it appeared that in Auckland, SkyCity was massively outperforming pubs and clubs in terms of gaming machine revenue, Mr Simpson said.

Mr Solly said that because of the refurbishment projects that had been going on in Auckland in the past year or more, it was hard to know what the improved Auckland performance was down to.

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"This is the first period where they haven't had any development going on so maybe we're back to normal trading."

Both Mr Solly and Mr Simpson said the upgrade had made them more optimistic about the next financial year but rising unemployment remained a key risk.

"We're still a bit cautious in the sense that the unemployment situation is going to get worse before it gets better," Mr Simpson said.

"We're quietly optimistic that this is a good base to work from but you've got to be aware that it will undoubtedly, at the margin, be impacted by unemployment rates if they increase substantially," Mr Solly said.

- The Dominion Post

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