Given the good results and relative cheap multiples, I bought today and am looking to top up gradually. Gotta wonder if there's takeover interest given it's recent low prices.
Goldman's report below
Event: • SKC has increased its FY09 NPAT guidance from “comfortably within” the range of $99m-$106m to $113m-$116m. The company also expects underlying and reported EBITDA for FY09 to be approximately $300m (GSJBW $287m). • The earnings upgrade is driven by a strong forth quarter performance from all casino operations. In addition, SKC has benefited from a higher 2H09 contribution from cinema activities. International VIP is in line with theoretical in 2H09. • While there are limited details provided, 2H09 EBITDA growth of some 9% suggests a substantial turnaround of Adelaide casino coupled with substantial benefits from the gaming expansion and refurbishment of Darwin and Auckland casinos respectively. Earnings and Valuation Impact: • We have increased our FY09 Adjusted NPAT by 9% supported by: 1) stronger 2H09 gaming revenue growth at all major casinos; 2) lower costs at Auckland casino; 3) stronger box office performance; and 4) International win rate in line with theoretical. • Our earnings estimates from FY10 onwards have increased by around 4% with some the FY10 gaming growth in Darwin and Adelaide casinos being captured in FY09. • We now believe our FY10 earnings estimates could be relatively conservative with the strong possibility of further benefits from Auckland casino refurbishment spilling over into 1H10. • SKC is trading at 27% discount to our DCF valuation of $4.15 per share versus NZ market discount of 21%. After allowing for historical volatility, SKC's valuation gap is the fourth most attractive company in our NZ coverage universe. • In addition, on our estimates SKC remains the cheapest gaming stock in Australasia based on either Adjusted EV/EBITDA or P/E ratios. SKC's traditional adjusted EV/EBITDA premium of 5% to 10% to Australian peers implies fair value between $3.65 (+20%) to $3.85 (+26%) per share Investment View: • We believe this only represents the start of a substantial rerating for SKC. In particular, we continue to see significant valuation upside created by strong underlying earnings growth in both FY10 (from Darwin Casino expansion) and FY11 (from a cyclical recovery in NZ household consumption). • Investors also receive an attractive FY10 cash dividend yield of 5%, FY10 free cash flow yield of 9% and a free option over any future M&A.
SKC Price at posting:
$2.53 Sentiment: Buy Disclosure: Held
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