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

SKYCITY FY20 — Quality Outcome Given the Hand Dealt

OUTPERFORM
SKYCITY (SKC) delivered a credible FY20 result, in the circumstances, however attention was more focussed on recent trading insights and outlook commentary — both of which were better than we (and the market) expected. The result was a timely reminder of the resilience of gaming spend and SKC's high reliance on domestic customers (c. 85% of earnings pre COVID-19 disruption). There remain a number of known unknowns, and we expect the share price to remain volatile and responsive to COVID-19 (and vaccine) related newsflow. However, at 16x PE and 8x EV/EBITDA using FY22E, which still incorporates a c. -15% decline in EBITDA vs our pre COVID-19 forecast, we believe you are being compensated for the risks.


What's changed?



EBITDA: Revisions to recovery path with&nbsp;FY21E materially higher (+13%) due to a lift in gaming and margin assumptions, only small changes thereafter.
Target price: Modestly higher at NZ$3.25&nbsp;(+5%).



FY20 pre-released; trading insights particularly encouraging


SKC's&nbsp;FY20 result had no shortage of complexity given the&nbsp;NZICC&nbsp;fire, asset&nbsp;divestments&nbsp;and the disruption of&nbsp;COVID-19.&nbsp;Headline results were pre-released and&nbsp;at the upper end of recent guidance (and slightly ahead of our expectations)&nbsp;with FY20 normalised&nbsp;EBITDA&nbsp;of NZ$201m (-34% like for like on the prior year).
The highlight (and focus) of SKC's result was trading and outlook commentary showing a rebound in spending on re-opening, particularly for the key gaming business. While this aligns with our recent research notes (following our channel checks, regular visits to SKC's properties and global industry commentary), the strength of the rebound still surprised us on the upside. SKC guided to FY21 normalised EBITDA to be "above FY20" (assuming no change in COVID-19 settings), albeit materially down on pre COVID-19 levels.


Balance sheet and&nbsp;cashflow&nbsp;— better recent trading has helped liquidity, with headroom to withstand further temporary closure(s)


SKC reported pro-forma net hedged debt (including leases) of NZ$493m at 30 June, with available liquidity of NZ$559m. SKC has cash capex remaining of ~NZ$260m (or gross capex of ~NZ$590m, including that covered by insurance) on its major projects; spread over the next few years. This is unchanged, albeit timing continues to be slower vs our expectations.&nbsp;
Following the recent capital raise SKC has reasonable liquidity, balance sheet headroom and near-term covenant relief (31 December 2020 and 30 June 2021) for various scenarios, including should we see another period of temporary casino closure. We assume a return to dividend payments from 2H21, with expectations for a return to a gross yield from FY22E of c. 7% (with growth potential) — attractive against any benchmark especially in the low interest rate environment. This is supported by our expectations for an improving free cashflow yield as major project capex finally rolls off after an extended period.&nbsp;




Chelsea Leadbetter CFA
chelsea.leadbetter@forsythbarr.co.nz
+64 4 495 5262




SKYCITY: FY20 — Quality Outcome Given the Hand Dealt

Skycity Entertainment

SKYCITY: FY20 — Quality Outcome Given the Hand Dealt