SkyCity shares tumble

Last updated 14:23 11/05/2012

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Shares in SkyCity have fallen 5 per cent to $3.70 each today following a profit warning from the casino operator.

Dual-listed SkyCity Entertainment Group has downgraded its estimated net profits for the full year, citing softer trading in its Australian businesses and a slower economic recovery in New Zealand.

The company issued a guidance update this morning revising its anticipated net profit after tax for the full year to June from 'in the high $140 millions'' to ''the low $140 millions''.

Analysts said subdued discretionary spending, jitters from fragile European sovereign debt crisis and a touch of nerves following adverse publicity were the likely causes for SkyCity pulling back its profit guidance today.

Rob Bode, director and head of research at First NZ Capital Group, said the revision was a little surprising for the market as the company had upgraded forecast profit at its November annual meeting.

''They've really gone back to where they were,'' he said. ''Clearly there's been a little deterioration in Australia and I guess the market had kind of sensed that. It's probably a slow down in Auckland as well coming through that we had anticipated.''

The company has been at the centre of a controversial deal with government to build a $350 million national convention centre in Auckland in exchange for gaming concessions.

''It begs the question whether some of the negative publicity they've had recently has had an impact on them,'' said Bode.

Further, its chief operating officer Stuart Wing this week resigned suddenly stating he and his family would return to Australia for personal reasons. Wing, who has held the post a little over a year, admitted a drink driving charge in the Manukau District Court on Friday after being caught speeding in Taupo in March.

But aside from the adverse publicity, the company has likely been impacted by consumers being cautious about discretionary spending due to the uncertain economic environment in Europe.

The bright spot has been SkyCity's international business, Bode said.

SkyCity remained confident that its Auckland property would achieve high single-digit earnings growth, before interest, tax, depreciation and amortisation, in this second half compared to the prior year.

This would be underpinned by continued strong growth in its international business and returns on its recent $50m capital investment programme, the company said.

Despite the revised guidance, the company is still well ahead of last year's full net profit after tax of $130.9m.

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''It's just marked back a peg from where it was anticipated a couple of months ago,'' said Bode.

SkyCity ceo Nigel Morrison said trading had softened since November with revenue growth at its Adelaide casino slowing and the NZ dollar had firmed.

Expected second half ebitda for the Darwin property would now be broadly flat on the previous corresponding period. Morrison said while the New Zealand economy continues to show some signs of recovery, the pace had slowed.

''The rate of unemployment in New Zealand recently increased from 6.4 per cent to 6.7 per cent which is disappointing and is likely to be one of the causes of more cautious discretionary consumer spending,'' he said.

SkyCity will release its full year results on August 15.

- BusinessDay.co.nz

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