The shares of hotel and casino operator SKYCITY Entertainment Group Limited-Ord (ASX: SKC) will be one to watch this morning after the release of a mixed half-year result.
Key highlights from the release include:
- Total reported revenue dropped 5.8% on the prior corresponding period to NZ$533.1 million.
- Reported net profit increased 18% from the first half of FY 2016 to NZ$83.8 million.
- Reported earnings per share rose 5.8% to 12.7 cents.
- Queenstown, Adelaide, and Darwin all posted a drop in earnings before interest and tax (EBIT).
- Strong performance from its Auckland and Hamilton businesses. Auckland posted a 12.7% jump in EBIT and Hamilton saw EBIT rise 68.6%, albeit from a low base.
Whilst this wasn't necessarily a bad result, there's not a great deal to get excited about in my opinion.
The good
I was impressed with the performance of its Auckland business. Despite revenue rising 3.7% to NZ$283.9 million, the company delivered a 12.7% increase in earnings before interest and tax to NZ$105.1 million.
Pleasingly management expects the second half to be just as strong for the Auckland business. Favourable macroeconomic drivers, new major events, and ongoing initiatives are expected to drive visitation.
The bad
As well as the poor performance of its Australian businesses, a big worry in my eyes is the huge drop in international business. During the half international business fell 38.7% to NZ$4.4 billion due to increased restrictions on funds transfers and reduced visits by larger spenders.
This decline led to a 68.6% drop in earnings before interest, tax, depreciation, and amortisation in the segment to NZ$7.1 million.
Segment earnings fell quicker than revenue in the second half due to its high fixed costs. Management aims to tackle these costs moving forward, which will be a positive step as I don't see a turnaround in international business happening any time soon unfortunately.
Is it a buy?
I would avoid the company until there is a turnaround in performance of all its businesses. I feel at this stage the company is too reliant on its Auckland casino and a change of fortunes there could see earnings plummet.
For this reason I would much rather try to capitalise on the tourism boom with an investment in either Event Hospitality & Entertainment (ASX: EVT) or Mantra Group Ltd (ASX: MTR).
