Sky City Entertainment

Friday 19th August 2011

Citigroup has cut Sky City Entertainment (SKC.NZ) to Sell from Hold as the broker says the stock offers a negative expected total return.

Citi raises its EPS estimates by 4.2% for the year ending 30 June 2012 (FY12), and cuts its FY13 EPS estimates by 0.6%. Citi raises its price target on the stock to NZ$3.30 from NZ$3.20 and says given the ongoing instability in Christchurch, which has been hit by earthquakes since September of 2010, and its impact on local demand and inbound tourism, "there is a risk of further write-downs of SKC's 50% stake" in the Christchurch Casino. SKC has accounted for a NZ$15 million impairment against the casino joint venture, reducing the carrying value to NZ$74 million from NZ$89 million.

Dan Stratful broker at Investment Research Group (IRG) says that SKC is a defensive business that has coped well during the downturn, shoring up its balance sheet with an equity raising 2 years ago. “SKC has struggled to see revenue growth over the last few years, but the Rugby World Cup, and several other initiatives put in place by the company around the Federal Street entertainment precinct, should see revenue growth in the current year”. “Its balance sheet is strong, it has good cashflow, and the shares are underpinned by its dividends, while the refurbishments at the Auckland premises appear to be delivering the desired results.”

In its annual results released this week for the year ended 30 June 2011, SKC reported normalised net profit rose 4% to $130.87m from a year earlier on normalised revenue growth of 4.5% to $876.9m.

Contact IRG on 0800 437 8489

Dan Stratful

Authorised Financial Adviser (AFA)

dan.stratful@irg.co.nz

Disclosure of interest: SKC

**A disclosure statement is available, on request and free of charge by calling 0800 437 8489.

Recommendation sourced from the IRESS software trading platform

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