Daily ShareChat: Sky City Entertainment Group

Sky City Entertainment Group reported a solid earnings uplift driven by growth in operating earnings at its Adelaide and Darwin casinos, both up 7%, and lower interest costs following last year's capital raising, says Marcus Curley, an analyst at Goldman Sachs JB Were.

Sky reported a 29.5% rise in net profit to $71 million and a 7.8% rise to $160.1 million in earnings before interest, tax, depreciation and amortisation (EBITDA) with earnings from its key Auckland casino flat.

The Darwin casino is benefiting from its expansion, although the initial benefits from greater machine numbers are smaller than expected, and the impact of the smoking ban from January 2 seems milder than expected.

"As EBITDA from Australian casinos diminishes in the second half, investor focus is quickly shifting on the prospects for Auckland casino," Curley says.

"While some people may find disappointment in subdued gaming at Auckland casino during the first half, we view this as simply a reflection of a weak New Zealand household consumption backdrop," he says.

"We continue to expect a cyclical recovery in NZ household consumption and gambling to emerge during calendar year 2010 driven by stimulus from lower interest rates and jobs creation."

Sky's good cost control suggests any incremental gaming revenues will drive strong earnings growth, Curley says.

BROKER CALL:  Goldman Sachs JB Were rate Sky City Entertainment Group as buy.

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