Daily ShareChat: Sky City Entertainment Group

The key to a meaningful shift in Sky City Entertainment Group's value is still sustained revenue and earnings growth at the Auckland casino which requires a turnaround in its gaming machine performance, says Rob Bode, an analyst at First NZ Capital.

The latest result, which saw Sky City lift underlying net profit by 13% to $115 million, provided little sign of any meaningful improvement in the Auckland casino's performance, he says.

"Auckland's performance was around $4 million lower in the second-half than our revised estimate. Auckland did not get the turnaround in gaming machines that we were looking for."

However, the Adelaide casino's 42% rise in earnings before interest, tax, depreciation and amortisation to $A29.4 million ($NZ35.9 million) was "a stunning performance" and $A3.4 million above his estimate, Bode says.

While the waning impact of the smoking ban introduced in November 2007 and the Australian government's fiscal stimulus measures may have helped, "much of the uplift is the enhancements management have made to the table game offering, including the addition of baccarat rooms and introduction of electronic rapid roulette."

"While we do not see any near-term catalyst for further re-rating, we continue to hold the view that Sky City shares represent good value given Sky City's strong cashflow, security of licence tenure and restrictive competitive environment."

BROKER CALL: First NZ Capital rate Sky City Entertainment Group (NZX: SKC ) as neutral (revised from outperform, reflecting the recent rally).

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