Daily ShareChat: Sky City

Thursday 1st July 2010

Sky City Entertainment Group's one-off $60 million increase in deferred tax liability as a result of the government's tax depreciation changes will have no impact on underlying profitability or dividend levels, says Jeremy Simpson, an analyst at Forsyth Barr.

Sky expects annual income tax paid will increase by about $2 million, partly offset by the company tax rate falling from 30% to 28%. Simpson says he has cut his valuation by 3.5% to $3.46 a share as a result.

"We had previously downgraded forecasts due to the impact of an increase in GST and continue to not factor in any increase in demand from lower personal tax rates," Simpson says.

He expects Sky's earnings before interest, tax, depreciation and amortisation for the year ended June was flat with modest gains in Australia offsetting ongoing softness at the Auckland casino.

"Despite a number of management initiatives to increase activity, the second half has been patchy at Auckland with stronger months following weaker months and this is consistent with other consumer-facing businesses in New Zealand," he says.

Sky remains well-placed for medium-term operational upside from successfully leveraging off a refurbished Auckland casino once economic conditions improve but he doesn't expect that to happen until the years ending June 2011 and 2012, Simpson says.

Recommendation: Buy.

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