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
Re-checking the Odds
OUTPERFORM
The casino sector has been hit hard by COVID-19, with data points fluid and evolving, however, early data and anecdotes support our view gaming spend will recover. Revisiting the global casino backdrop we believe SKYCITY (SKC) remains well positioned versus sector peers, helped by a greater reliance on domestic visitation.​​​​​​​ We expect the share price to remain volatile and responsive to COVID-19 (and vaccine) related newsflow. However, at 15x PE and 7.5x EV/EBITDA using FY22E, which still incorporates a c. 14% decline in our EBITDA expectations since pre COVID-19 levels, we believe you are being compensated for the risks. OUTPERFORM.


SKC&nbsp;appears well positioned versus casino sector peers


COVID-19 has been (and still is) highly disruptive for the global casino sector given: (1) property closures and government imposed supply restrictions, (2) consumer confidence / willingness to visit large, typically crowded, facilities, (3) the impact on global and domestic travel. SKC appears well positioned versus peers, particularly given a greater reliance on domestic/local visitation (vs tourists) and no restrictions at its key casino properties. Although we caution there is risk the latter changes should we see a re-escalation of the virus in NZ.


Revisiting the recovery path


There remain a number of known unknowns, with no precedent to use as a guide for the demand recovery path. Early data points show indications of pent-up demand on re-opening, however, it remains challenging to forecast where demand 'settles'. Our regular visits to SKC Auckland suggest visitation levels steadily accelerated post re-opening and appear to have stabilised in recent weeks.
Our base case now assumes a return to 'normal' in FY22E (most areas of the business) or FY23E (when including International Business, IB, and hotels). We make some adjustments to our recovery path — NPAT revised +16% in FY20E, -15% in FY21E (taking a more conservative view on border re-opening which negatively impacts IB and hotels) and -1% in FY22E — with minimal changes thereafter. FY20 and FY21 will be 'messy' years given COVID-19 closure &amp; disruption, accounting implications from the NZICC fire, and project accounting. Looking beyond this, SKC trades on undemanding FY22 multiples vs history, peers and the NZ market.


Balance sheet questions resolved following funding injection; dividend reinstatement first full year likely to be FY22


The recent funding injection (new equity and bank facilities) resolved our outstanding questions around SKC's balance sheet. There are still a number of moving parts (including project capex timing, fire insurance / reinstatement timing, and EBITDA recovery profile), however, our analysis suggests SKC has balance sheet capacity and reasonable headroom in its gearing trajectory (and temporary covenant waivers) for various scenarios, including should we see another period of casino closure. We assume a return to dividend payments from 2H21, with our forecasts for an FY22E cash yield of c. 5.5%, attractive vs most benchmarks, including the NZ market.




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




Skycity Entertainment

SKYCITY: Re-Checking the Odds