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Sky City profit drops

Sky City Entertainment Group (ASX:SKC) has reported an 8% fall in profit, compared to last year.

The New Zealand-based company has monopoly casinos in Auckland, Hamilton and Queenstown, as well as Adelaide and Darwin in Australia. In its release, Sky City noted that its 2012 results included the effects of the Rugby World Cup, which ran from September to October 2011, so its 2012 profit was unusually high.

Revenues in 2013 fell 0.5% to NZ$863 million, with net profit coming it at NZ$127.3 million, and the company declared a final dividend of NZ 10 cents, to go with the 10 cent interim dividend. Auckland is by far and away the company’s biggest money spinner, bringing in $418m in revenues, and more than 70% of group earnings before interest and tax (EBIT).

Competition coming?

Like Australia, New Zealand assigns monopoly casino licences to major towns and cities. Echo Entertainment (ASX:AGP) holds exclusive licences for casinos in Brisbane, Sydney, on the Gold Coast and Townsville in far-north Queensland, although that could be changing with Crown Limited (ASX:CWN) being given the go-ahead to develop a strictly VIP/high roller casino at Barangaroo on Sydney’s waterfront, that will compete directly with Echo’s Star Casino.

Brisbane is also rumoured to be looking at giving the go-ahead for a second casino in the city to compete with Echo’s The Treasury casino. Crown could the likely beneficiary, given the result in Sydney.

Foolish takeaway

Sky City doesn’t appear to be under threat from having new casinos set up in the cities and towns it operates in. Trading on a P/E ratio of around 18 and paying a dividend yield (unfranked) of over 4%, the company doesn’t look expensive compared to its peers.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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