Is it time to bet on the SKYCITY Entertainment Group Limited (ASX: SKC) share price after it announced its FY20 result and gave a FY21 update.
Skycity is the owner and operator of casinos in New Zealand and Adelaide. Its NZ locations include Auckland, Queenstown and Hamilton.
FY20 result
Casino operators like Skycity reveal two sets of numbers, normalised numbers and reported numbers. The main difference is actual wins compared to ‘theoretical wins’ which is the win rate expected by the casino when gamblers play.
However, the normalised result also adjusts for the New Zealand International Convention Centre (NZICC) fire, the Auckland car park concession sale, the impairment of the Skycity casino licence as well as other items. The normalised results also haven’t been adjusted for the COVID-19 impact and property closures, apart from redundancy costs relating to the restructure.
Having said all that, let’s look at the announced numbers…
Profit numbers
Reported revenue grew by 36.8% to $1.125 billion, reported EBITDA (click here to learn what EBITDA means) grew 16.9% to $348.3 million and reported net profit grew by 62.8% to $235.4 million.
Normalised revenue fell 24.3% to $779.5 million, normalised EBITDA dropped 37.7% to $200.7 million and normalised net profit fell 59.7% to $66.3 million.
The normalised EBITDA and net profit was at the top end of its guidance provided when it did a capital raising a few months ago. The reported result was up a lot due to the NZICC fire accounting and the gain on the Auckland car park sale, though these positives were offset by the $150 million impairment of the Adelaide casino licence. Insurance recovery for the fire amounted to $337 million.
Local EBITDA for the eight months to 29 February 2020 was up around 5% on a like for like basis. The business had generated decent growth before COVID-19 struck.
Thankfully, the NZ wage subsidy and the Aussie jobkeeper helped mitigate the impact of property closures and limited number of international customers.
The online casino business, based in Malta, saw trading ramp up significantly during the COVID-19 period. There were over 35,000 customer registrations at 31 August 2020 and EBITDA was positive every month from April 2020.
The casino operator decided not to pay a final FY20 dividend. Dividends will be suspended for the period of covenant waivers/relief.
Outlook
Its domestic businesses have recovered more strongly than anticipated. Auckland had returned to pre-COVID-19 levels and Hamilton is ahead. There is a significant improvement in operating margins as it benefits from cost savings.
Skycity said EBITDA and cashflow is “materially ahead of expectations”. Adelaide is EBITDA and cashflow positive since reopening. The NZ online casino saw a slight reduction in revenue after the re-opening of NZ properties, however, trading continues to be positive.
In FY21 the company is expecting normalised EBITDA to be above FY20, but below pre-COVID-19 and below FY19 levels. It couldn’t provide guidance due to uncertainty.
This was a solid result and update by Skycity. But it seems like it will be challenged for a while until international travel returns to normal. It may be a decent ‘value’ play, but I prefer the idea of ASX growth shares like Pushpay Holdings Ltd (ASX: PPH).
