Reaching for the Sky

OPINION: SkyCity's profit upgrade is a great tonic for the market ahead of the results reporting season next month.

And it follows on from pretty positive news from Delegat's Group yesterday.

Casino operator SkyCity's raised forecast suggests that its profit is likely to be in the region of $10 million to $13 million more than when it last gave forecast indications to the market in June. In other words the cash in the till is going to be a good 10 percent more than SkyCity thought.

That is a good effort in this environment.

While casino businesses have often been said to be recession-resistant, that has not proven to be the case globally during the current downturn at all.

SkyCity seemed to be particularly hurt by high petrol prices last year, so the lower costs at the pump recently will have helped - but that would only be a small part of the story.

Managing director Nigel Morrison, who's been in the driver's seat for approaching a year-and-a-half, has clearly got a company that lost its way now heading in the right direction. He has restructured management and the reorganisation is evident on the casino floor.

On a recent visit to SkyCity's Auckland casino, my first in several months, I was struck by a greater sense of urgency around the place. The layout and organisation looked better, and the ability to gamble - and yes, lose! - money had never appeared easier. Everything about the operation was much more streamlined.

Morrison is an experienced casino operator and it is showing.

It was important that SkyCity rejuvenated the performance of the Auckland casino, because this is still much its biggest operation. And in recent times its performance has flagged.

As always the individual performances of the company's biggest casinos in Darwin, Adelaide and Auckland, will be a matter of great interest.

In recent results Darwin has been the jewel in the crown in terms of its return on assets. Adelaide has been a constant source of disappointment since being bought in the early part of this decade and Auckland has flattened out.

The fact that in today's upgrade the company highlighted improved performance in Auckland and Adelaide - as well as Darwin - is hugely encouraging.

Back in April SkyCity received some fairly ridiculous implied criticism through the marketplace about its decision to raise $228 million from shareholders when it didn't immediately need it.

The company's ability to earlier this month then buy-back and retire about $85 million of 2012 US private placement debt showed how wise it was to raise the money. Get money when you can, not when you really, really need it.

After providing explosive profit and share price growth in its early years through the 1990s and into the early 2000s, SkyCity has looked finished as a "growth story".

We'll wait till the actual profit announcement late next month before drawing firm conclusions. But based on what can be seen so far - and remember this is a tough environment - SkyCity is very much on the up again.

I was very critical of the timing of the departure of SkyCity's founding managing director Evan Davies. I thought it would have been better to make board changes first and leave Davies in the job till a replacement was found.

And you can still argue about the timing and whether that was the safest option or not in terms of what happened to the organisation while a replacement for Davies was sought. But the clincher is, the board (and they are to be congratulated) picked absolutely the right person to take over.

With little more than a month till most companies report their results, now is the time we will be hearing if firms are going to announce earnings that are substantially different from market expectations. The "confession" season they call it.

With what has gone on in the world during the past 12 months, nobody could have been too surprised if we started hearing some pretty grim confessions.

The fact we've had two pieces of very good news in the past two days gives encouragement that maybe it won't all be black next month.

- © Fairfax NZ News