With market caps of $4.4 billion and $2.3 billion, you’d think that investors would be all over these stocks.
But both still pay a handsome dividend yield above 5%, and appear to have a strong future ahead of them. The company’s I’m talking about are Tatts Group Limited (ASX: TTS) and Sky City Entertainment Group Limited (ASX: SKC).
Tatts provides a range of gambling products and services across many states in Australia, although primarily centred on Queensland, NSW, Victoria and Australia. The company runs lottery businesses in Queensland, NSW and South Australia, and its Talarius business operates gaming machines in the UK.
In the six months to December 2013, Tatts saw net profit rise 12% to $122 million (excluding the Victorian pokies operation), despite revenues falling 3.5%. Tatts says it is looking forward to a stronger second half, with revenues in January up 7%.
Tatts could also see a substantial windfall, if it and Tabcorp Limited (ASX: TAH) can win their $1 billion case against the Victorian government, after their pokies licences weren’t renewed in 2012. The case is still ongoing.
Sky City Entertainment Group
Sky City, on the other hand is in the casino business. The company owns and operates three casinos across New Zealand as well as one each in Darwin and Adelaide. Analysts expect the company to grow earnings strongly in the next few years – something Sky City has done well over the past five years. Shareholders have seen an average annual return of 15.6% over that time frame. The company is unlikely to face much competition, with strict rules over casino licences. Darwin and Adelaide are also likely ‘off the beaten track’ for the likes of Echo Entertainment Group (ASX: EGP) or Crown Resorts Limited (ASX: CWN) to enter.