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Daily ShareChat: Sky City

By Jenny Ruth

Wednesday 23rd February 2011

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 Jenny Ruth

Sky City Entertainment Group's share price is likely to be driven by improving cyclical demand for gaming in New Zealand and Australia, says Marcus Curley at Goldman Sachs & Partners.

Sky City's bottom line first-half net profit fell 5.5% to $67.1 million but normalised profit was up 2%.

Curley says while gaming trends at the company's key Auckland casino are still negative, they are improving. Revenue was down 3% in the latest first-half compared to an 8% decline in the six months ended June 2010.

The 13% decline in the Darwin casino's earnings before interest, tax, depreciation and amortisation (EBIDTA) due to the smoking ban introduced in January 2010 was greater than he had expected, he said.

"Encouragingly, machine revenue increased 4% in the first six weeks of the second half despite incremental smoking restrictions on outdoor areas," Curley says.

The stronger contribution by VIP, or international, business led him to raise his adjusted net profit forecast by 1% for the year ending June 2012 and by 2% for the following year but he has left his $130 million forecast for the current year unchanged.

Curley values Sky City shares at $3.95 and says it is a relatively cheap Australasian gaming stock, trading at about 8.3 times full-year 2011 earnings compared with the 8.6 times average for its peer group.

"Our analysis suggests Sky City is one of the cheapest pure-play casino stocks in the world."

Recommendation: Buy.

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