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SKYCITY scoops up Wharf Casino

New Zealand-based casino operator SKYCITY Entertainment Group (ASX: SKC) has announced the purchase of the Wharf Casino in Queenstown, NZ.

The acquisition consolidates the company’s position within the Queenstown market as it already owns the SKYCITY Queenstown Casino. At a purchase price of $5 million, it is a small bolt-on acquisition for SKYCITY, which has a market capitalisation of NZ$2.5 billion. SKYCITY boasts a diversified portfolio of casinos. In New Zealand, the company has operations in Auckland, Hamilton, and Queenstown, while in Australia SKYCITY operates casinos in Adelaide and Darwin.

The domestic casino industry is mature, which is forcing operators to expand by acquisition and into new markets. Billionaire James Packer-backed Crown (ASX: CWN) has continued to grow by expanding into one of the few global casino growth markets — Macau, China — via Crown’s 33.6% interest in listed vehicle Melco Crown Entertainment (NASDAQ: MPEL) which owns two casino licenses in Macau, including the City of Dreams.

Packer is also looking to muscle in on the Sydney market, which is currently monopolised by Echo Entertainment’s (ASX: EGP) Star Casino. This is an interesting tactic as up until now each Australian capital city has only had one casino. Should Packer be successful in Sydney, it will no doubt create further pressure for competition in some Australian capital cities such as Melbourne and Perth where Crown has operations.

One little followed casino license which might be appealing to the larger players is Reef Casino’s license in Cairns, Queensland. The license is currently held by Casinos Austria Group with the venue owned by property trust Reef Casino Trust (ASX: RCT). Given the move by the bigger players to consolidate the sector it will be interesting to see if anyone makes a play for the Cairns license.

Foolish takeaway

The monopoly attributes of casino operators have made them enticing and defensive investments. However given the lofty valuations, low yields, and the potential increase in competition, investors should probably look elsewhere.

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More reading

The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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