SkyCity earnings forecast to dip due to COVID-19
SkyCity Entertainment has revealed it is forecast to record a 75 per cent operating earnings drop and net loss in its half-year result because of the impact of the coronavirus pandemic.
NZ Herald reports the casino operator, which runs businesses in New Zealand and South Australia is set to release its half-year July 1 to December 31, 2021 result on February 14.
Jarden analysts Adrian Allbon and Jason Cao released an in-depth analysis of the outlook for the company.
“Given the backdrop of its key Auckland property being closed for effectively 110 days due to COVID-19 restrictions, we expect EBITDA, including $17 million wage subsidies taken, to be down 75 per cent versus the previous corresponding period to $30 million,” analysts wrote.
Net profit after tax will be a $24 million loss, compared to the previous profit of $44 million in the same half-year ended December 2020.
Auckland casino closure costs $1m a day
SkyCity chief executive Michael Ahearne has previously said that for every day Auckland’s casino is shut, the company loses around $1m in revenue.
Ahearne has previously been specific about what the pandemic is costing yet he has also previously firmly backed the Government move, saying he had no questions about the country’s strategy.
A SkyCity spokesperson said it could not comment on the analysis because it was now in the pre-result blackout period.
The two Jarden analysts said the sheer length of time its properties were shut would be the huge difference between the two half years, particularly in Auckland.
The 110-day closure compares to 19 days in the previous half0year, so the latest result will be much harder hit, they said.
The company has been granted a balance sheet waiver.
In October 2021, Ahearne said: “In response to the ongoing COVID-19 disruptions in New Zealand and in particular the prolonged lockdown in Auckland, we have prudently engaged with our financiers to discuss a debt gearing covenant waiver for our December 2021 testing period to enable full access to our committed liquidity headroom.”
The Jarden analysts noted that by the end of October, its net debt was $648 million, with $230 million of liquidity available.
Key terms agreed with debt providers were for a full waiver of the company’s December gearing covenant.
The analysts said the company’s ability to pay dividends was restricted while such covenants were in place.
Nor could the company’s properties operate at capacity.
“Currently, New Zealand is operating at a red traffic light setting, which restricts group sizing to 100 people but allows SkyCity properties to be open, they noted.
“We estimate under this setting Auckland is on an EBITDA rule of thumb of around $8 million per month,” they said.
Capacity restrictions across SkyCity sites
With no domestic restrictions, SkyCity’s Auckland properties would be earning around $20 million per month, so the business was generating less than half its usual revenue from its powerhouse base near the headquarters.
“Hamilton is also impacted and Adelaide continues to face capacity constraints as well. The further unknown for New Zealand is whether earnings prospects will be further dented as omicron cases lift and a greater proportion of CBD workers are bound to the home,” the analysts said.
On December 23, the company said it had done a deal with Europe’s Gaming Innovation Group, providing 25 million euro of new equity to help fund the purchase of France-Pari/Sportnco.
Allbon and Cao said of that deal: “We view GIG investment of around $40 million as unfortunate timing of SkyCity but equally a necessary commitment to secure the ongoing focus of GIG as SkyCity’s exclusive online casino platform provider.
Longer-term, the investment stake could prove to be accretive if GIG can successfully execute its own online and sports betting opportunity set.”
