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Skycity share price falls despite record profit

A record net profit failed to fire up the SKYCITY Entertainment Group Limited (ASX: SKC) share price as the stock backed away from challenging its 52-week high.

The SKC share price lost 2.1% to $3.75 in morning trade even as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index gained ground on positive offshore leads after US President Donald Trump watered down his tariffs on Chinese imports.

The casino operator’s underperformance also stands in contrast with its peers. The Crown Resorts Ltd (ASX: CWN) share price jumped 0.6% to $11.39 while Tabcorp Holdings Limited (ASX: TAH) share price improved by a similar amount to $4.40 at the time of writing.

Record profit loses its gloss

One of the issues with Skycity is that it posted a messy full year result that isn’t so easy to follow. While its reported net profit collapsed by nearly 15% to NZ$144.6 million for the year ended June 30, its normalised net profit increased 1.9% to a record NZ$173 million.

But to get to the record result, management had to strip off a number of what they considered non-relevant items, such as accounting treatment on commissions, a lower revaluation of properties and the sale of assets including its Darwin operations.

The group’s Auckland operations are doing most of the heavy lifting with revenue increasing by 3.8% to NZ$606.7 million and earnings before interest, tax, depreciation and amortisation (EBITDA) improving 2.8% to NZ$267.9 million.

FY20 Outlook

However, the results also show a squeeze on margins and management is warning of ongoing cost pressure for FY20 and a challenging domestic and international environment.

But on a normalised basis, Auckland should be able to deliver modest earnings growth on a like-for-like basis with gaming activity offsetting weakness in its hotel operations.

Its other New Zealand properties are also tipped to achieve some earnings growth but the outlook for its international business is more uncertain. Management thinks it would be a good outcome if the international business stayed flat this financial year.

Skycity added that trading since the start of FY20 is inline with expectations and that its winning streak has given Auckland and the international division a head start.

The group is facing a fairly hefty debt repayment schedule and is considering issuing bonds later this year. Skycity needs to repay NZ$49 million in debt in FY20 with another NZ$106 million due in FY21.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. The Motley Fool Australia has recommended Sky City Entertainment Group Ltd. 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 Scott Phillips.