New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>SKYCITY<br>1H22 Preview&nbsp;&nbsp;— When the Chips are Down</h2>
<div></div>
<p><strong>OUTPERFORM</strong></p>
<p>1H22 has been a challenging period for SKYCITY (SKC) with its core Auckland property (~70% of EBITDA pre corporate costs) materially impacted by COVID-19&nbsp;lockdowns&nbsp;(~75% of the period either closed or under restrictions). In addition,&nbsp;SKC's&nbsp;Adelaide and Hamilton properties have not been immune to periods of disruption. As a result, our core focus areas at the 1H22 result are (1)&nbsp;SKC's&nbsp;balance sheet and its ability to withstand future disruptions, and (2) any insights into trading under restricted settings, particularly in Auckland and Adelaide.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/255/943/original/image_75492163031644373462632.png?1644373466" class="editor-image img-responsive" data-smartkarma-image-id="255943"></figure>
<div>
<h3>Key areas of interest at&nbsp;SKC's&nbsp;1H22 result</h3>
</div>
<div id="m_7399290634362236204i97jx">
<ul>
<li><strong>Balance sheet the key focus area</strong>: Helped by the resilience and strength of domestic gaming through FY21, SKC's balance sheet was in a solid position heading into FY22. Lockdowns have created near-term pressures with covenant waivers required to navigate the December 2021 testing period (with no interim dividend to be paid) and gearing set to be elevated at FY22. That said, notwithstanding extended lockdowns into 2H22 we believe SKC should have balance sheet flexibility to effectively navigate the June 2022 testing period on its revised covenant terms (2x 2H22 EBITDA as opposed to last twelve months).</li>
<li><strong>Trading insights</strong>: 1H22 has been SKC's most impacted period through the COVID-19 pandemic to date. Any insights into trading post re-opening in Auckland (in both the red and orange settings) is of particular interest. Prior trends post re-opening and recent offshore casino commentary have been positive, and latest company guidance is the red setting represents ~50% of normal EBITDA. Adelaide insights into (1) updated trading, and (2) updated views on medium-term earnings potential will be of interest.</li>
<li><strong>Risk and AML protocols</strong>:&nbsp;SKC is under investigation from Australian regulator, AUSTRAC, in what appears to be a&nbsp;focus&nbsp;on historical VIP activities at Adelaide in FY16 and FY19 (3% and 1% of group EBITDA) in a sector-wide blitz.&nbsp;Any updated commentary or insight into further investment in this area is of interest.</li>
</ul>
</div>
<div>
<h3>Investor briefing&nbsp;— 12pm NZT (10am AEST) on Monday, 14 February</h3>
</div>
<div id="m_7399290634362236204idn4r">
<p>Requires pre-registration;&nbsp;<a href="https://s1.c-conf.com/diamondpass/10019008-r65d76.html" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://s1.c-conf.com/diamondpass/10019008-r65d76.html&amp;source=gmail&amp;ust=1644454498436000&amp;usg=AOvVaw09pl7kkM0SYLZ9s-8ejlr6" rel="noopener">https://s1.<wbr>c-conf.com/diamondpass/<wbr>10019008-r65d76.html</a></p>
</div>

SKYCITY 1H22 Preview&nbsp;&nbsp;— When the Chips are Down

OUTPERFORM
1H22 has been a challenging period for SKYCITY (SKC) with its core Auckland property (~70% of EBITDA pre corporate costs) materially impacted by COVID-19&nbsp;lockdowns&nbsp;(~75% of the period either closed or under restrictions). In addition,&nbsp;SKC's&nbsp;Adelaide and Hamilton properties have not been immune to periods of disruption. As a result, our core focus areas at the 1H22 result are (1)&nbsp;SKC's&nbsp;balance sheet and its ability to withstand future disruptions, and (2) any insights into trading under restricted settings, particularly in Auckland and Adelaide.


Key areas of interest at&nbsp;SKC's&nbsp;1H22 result



Balance sheet the key focus area: Helped by the resilience and strength of domestic gaming through FY21, SKC's balance sheet was in a solid position heading into FY22. Lockdowns have created near-term pressures with covenant waivers required to navigate the December 2021 testing period (with no interim dividend to be paid) and gearing set to be elevated at FY22. That said, notwithstanding extended lockdowns into 2H22 we believe SKC should have balance sheet flexibility to effectively navigate the June 2022 testing period on its revised covenant terms (2x 2H22 EBITDA as opposed to last twelve months).
Trading insights: 1H22 has been SKC's most impacted period through the COVID-19 pandemic to date. Any insights into trading post re-opening in Auckland (in both the red and orange settings) is of particular interest. Prior trends post re-opening and recent offshore casino commentary have been positive, and latest company guidance is the red setting represents ~50% of normal EBITDA. Adelaide insights into (1) updated trading, and (2) updated views on medium-term earnings potential will be of interest.
Risk and AML protocols:&nbsp;SKC is under investigation from Australian regulator, AUSTRAC, in what appears to be a&nbsp;focus&nbsp;on historical VIP activities at Adelaide in FY16 and FY19 (3% and 1% of group EBITDA) in a sector-wide blitz.&nbsp;Any updated commentary or insight into further investment in this area is of interest.



Investor briefing&nbsp;— 12pm NZT (10am AEST) on Monday, 14 February


Requires pre-registration;&nbsp;https://s1.c-conf.com/diamondpass/10019008-r65d76.html


SKYCITY: 1H22 Preview — When the Chips Are Down

Skycity Entertainment

SKYCITY: 1H22 Preview — When the Chips Are Down