5 signs SKYCITY Entertainment Group Limited-Ord shares are a buy today

Is now the time to buy shares in SKYCITY Entertainment Group Limited-Ord (ASX: SKC)?

Last week the gaming resort company announced record earnings for the half year to 31 December 2015. It may be a tough act to follow, but in my view there are a number of signs that the company is still worth buying today;

1. Auckland is still hitting the jackpot…

SkyCity noted that turnover from International Business jumped a massive 51% for the half year; with NZ$7.2 billion flowing through the company’s casinos. This will likely fluctuate as share markets wobble with volatility, but SkyCity says local demand from Auckland continues to strengthen, up 7.6% in January.

2. …and growing organically

Auckland is SkyCity’s most important resort netting around 60% of the company’s normalised annual revenues. The asset is in a prime location to benefit from Auckland’s strong population growth. From a population of around 1.5 million in 2015, Statistics New Zealand is forecasting the city to approach 2 million over the next 15 years. Given SkyCity’s central position on the city’s landscape, the company is perfectly placed to benefit from growing demand.

3. Hotels are packed

Flourishing tourism and business demand in central Auckland over the last 12 months has been also been driving up hotel occupancy rates and prices. The surge in demand means it’s not uncommon to hear stories of people struggling to find accommodation in the city. This is positive for the existing hotels SkyCity operates, and also for the prospects of its new planned Hobson St Hotel, which the company is proposing to sell to help fund its planned growth projects.

4. The dividend is growing

SkyCity directors declared the first dividend increase in 3 years for the last six months which is another positive sign for investors. The increase represents not only strong free cash flows, but reflects the board’s confidence in its ability meet financing arrangements to fund the new Auckland and Adelaide projects which are being helped by low interest rates.

5. Monopoly casino

As ever, SkyCity’s monopoly of gaming licenses is a significant asset around which it is building strategic entertainment hubs.  Gaming revenues are often subject to additional ‘sin’ taxes, but they are also becoming a tool to draw people into an area and grow revenue from restaurants, bars and other attractions.

Although the company is susceptible to risks of government regulation and economic volatility, if SkyCity Entertainment can continue to maximise its current opportunities, the value of the company will likely continue to rise.

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Motley Fool contributor Regan Pearson owns shares of Sky City Entertainment Group Ltd.. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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