SkyCity Entertainment Group Ltd (ASX: SKC) shares represent good value at the moment, according to analysts at Macquarie, who predict returns of more than 40%.
The company, which owns casino assets including the Auckland and Adelaide casinos, has experienced a turbulent couple of years following an anti-money-laundering case brought against it by the Australian regulator, Austrac.
In mid-2024, the company was ordered by the Federal Court to pay a $67 million fine for breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. It has since implemented measures to ensure its operations comply with the legislation.
The stock is currently changing hands for 61.2 cents, up 4.7% on Friday, but not far off its low point over the past 12 months of 57 cents, and well below the 12-month high of $1.38.
The company's shares were also booted out of the S&P/ASX 300 Index (ASX: XKO) in the most recent rebalance in September.
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The worst is over, broker says
Macquarie analysts said a recent capital raise to shore up the balance sheet and potential asset sales flagged in August, which the company said would raise an expected NZ$200 million over the next 12-18 months, were a positive for the stock.
The recapitalisation and foreshadowed assets sales, which could release NZ$200m of capital in time, removes debates around leverage and covenant issues.
Macquarie analysts said near term, the company's earnings were disrupted, but they believed this would be the low point.
SkyCity's flagship property is Auckland, making up around 75% of annual earnings, and of which should be touching a cyclical low point in earnings, with clear catalysts/drivers to support the start of recovery in FY27. Importantly, the opening of the New Zealand International Convention Centre, which is fully integrated within SkyCity Auckland, and completion of other infrastructure projects supports higher precinct visitation from early 2026, which will benefit integrated resort earnings.
Macquarie analysts said further upside would come if the New Zealand economy stabilises and returns to growth.
SkyCity was also likely to benefit from the imminent issuance of online gaming licences in New Zealand, Macquarie said, with the company's brand recognition and first mover advantage – given it already has a small online gaming business – giving it an edge over competitors.
Risks to the downside included possible further spending required at the Adelaide casino on regulatory compliance.
Macquarie has an outperform rating on the stock and is expecting total shareholder returns of 49.3% over the next 12 months.
SkyCity is not currently paying a dividend.
