Monday, August 2, 2010

Sky City Entertainment Group 2010 Full Year Profit Preview

Sky City Entertainment Group Ltd [SKC.NZ] announces its 2010 full year profit on Tuesday 17 of August and it is going to be a record one. The company itself has indicated a net profit ranging from $126-132 million but the market seems to be indicating - if its share price has anything to do with anything at all - that profit could be at the top of this range or higher. The share price has gained slightly more than 5% over the last month and it is typical of this stock (and probably most other NZX listed stocks) to rise if insiders know profit results are going to be higher than expected.

In May I gave some reasons why the August result would be a good one:

In addition to the continued cost savings through paying down debt and other business costs there will be a gross $60-70 million from the proceeds of the sale of their cinema business which will be an approximate $10 million straight to the bottom-line. This would already be accounted for but the contribution to the 2010 full year is unclear because there is additional disposal of associated cinema assets that may not be sold before the June 30 financial year end.

One big determinant for the full year profit figure will be the Australian/Kiwi dollar cross. Back in August 2009 the Kiwi was buying over 81c Australian and over the last half has been trading well below 80c. Its Australian casino assets in Darwin and Adelaide have been trading well and the currency swap from revenue exported to head office in Auckland should give a good boost.

A solid 2010 result will continue a good run for SKC since its $NZ115 million 2009 full year result and will mean an increased dividend of at least 7.5c on the 6.5 paid out last year.

The market has reinforced my positive feeling that I got after interviewing CEO Nigel Morrison in mid June and my visit to the Auckland site and a good look around at how business was going on that particular day.

I have been a shareholder in SKC since 2003 and it makes up slightly more than one third of the Share Investor Portfolio and the August result is one of my most anticipated profit releases for this company for I think it will show how well the CEO has done since his appointment in March 2008.

In two years he has done well to turn the company around from the poor management of former CEO Evan Davies. One of the reasons he was hired because he was well known as a casino "Mr Fixit" and he has done what he was employed for and more.

I look forward to him telling us where the company is headed over the next year and what new strategies he might have to grow revenue and profit.

Disclosure: I own SKC shares in the Share Investor Portfolio

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