Sky City shares scale to new records, then ease

By NZPA

Friday 24th January 2003

Shares in Sky City Entertainment Group climbed to new records today but then eased back.

The stock hit a high of $8.80, but retreated from the peak to close down five cents on yesterday at $8.67.

A graph shows the stock has made a seemingly inexorable climb since the start of 2000 when it was trading at less that $3.

But recently the ascent of the curve has steepened with some analysts putting it down to a delayed reaction to the leak last month of confidential company documents that showed Sky was trading considerably above most analysts' forecasts.

The Securities Commission, at the request of the Stock Exchange, is investigating an alleged insider trading incident involving a former employee of UBS Warburg who had allegedly obtained confidential management accounts of the casino operator and offered the information to an institutional investor on December 4.

The institutional investor, Brooke Asset Management, blew the whistle, alerting Sky to the security breach and contacting Warburg management.

The Warburg staff member at the centre of the incident, research analyst Malcolm Davidson, left his job before Christmas, as has his brother, who worked for Sky City.

The level of detail in the leaked document -- including budgets and historic figures -- suggested to Brooke that the figures came straight from Sky's management accounts.

Brooke principal Simon Botherway would not confirm his firm was involved but told the National Business Review it had a clear policy to ensure information was properly disclosed, discharging Brooke from the potential status of insider.

On December 5, the Australian Financial Review in its Street Talk column ran a story talking about Sky's strong performance and suggesting the consensus analysts' forecast of Sky's net profit for the year to June -- $93 million -- could be "on the low side".

"There is even a suggestion that the top forecast -- $105 million -- may be beaten," it said.

On December 6, Sky City issued a Stock Exchange announcement that it said was in response to AFR's speculation "and subsequent institutional inquiry".

In that statement, Sky City advised of strong increases in revenue for the Auckland and Adelaide casinos over the five months to November and said it was comfortable with forecasts for the year of $95 million to $105 million.

The Securities Commission is understood to be investigating whether other institutions than Brooke were privy to the inside information and whether Warburg had benefited in any way.

The commission would not comment on details of its probe.

UBS Warburg had no comment on the matter.

Mr Davidson told The New Zealand Herald he left UBS Warburg "for personal reasons".

Sky City managing director Evan Davies did not wish to comment on the leak but said the company had historically kept investors informed.

Before Christmas, he noted Sky's share price had not moved significantly on the December 6 announcement, indicating the information disclosed had not been "price sensitive" and although the price has now risen 18 percent since December 4, the company is sticking with the line it does not believe the rise was due to the bullish financial documents.

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