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Daily ShareChat: Sky City

By Jenny Ruth

Wednesday 1st September 2010

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 Jenny Ruth

Casino operator Sky City showed good 12% growth in net profit in the year ended June but its outlook is uncertain, says Nachiket Moghe, an analyst at Aegis Equities Research.

"In its outlook statement, management did not provide any forecast but said gaming markets and economic conditions remain uncertain which will continue to impact earnings," Moghe says.

"We are wary of the firm's near-to-medium-term performance, especially in New Zealand. Rising unemployment levels and a lacklustre housing market, which will continue to crimp discretionary spending, does not augur well for Sky," he says.

"The premium play segment in New Zealand is inextricably linked to the economy and should do well as the economy recovers."

While he expects better results from Sky's Australian casinos, concerns about the Auckland casino, which accounts for 60% of Sky's operating profit, has led him to pare his forecast net profit for the year ending June 2011 to $132.5 million from $145 million previously. That's not much above the $129 million Sky reported for the year just gone.

Moghe has also cut his fair value for the stock to $3.25 from $360 previously.

He says it is unclear what sort of returns Sky might achieve from spending $15 million on developing its Federal project adjoining its Auckland casino into a pedestrian-friendly entertainment destination which it hopes to complete in time for the Rugby World Cup.

Recommendation: Accumulate (downgraded from buy).

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