SkyCity Is Priced Attractively for Patient Investors

We maintain our NZD 3.80 fair value estimate for shares in SkyCity Entertainment ahead of the release of first-half fiscal 2022 earnings on Feb. 14, 2022. COVID-19 continues to weigh heavily on the firm's near-term outlook. The Auckland casino--SkyCity's core property--waded through over 100 days in lockdown during the period, heavily affecting visitor numbers at the group's venues in the first half of fiscal 2022. Additionally, visitor numbers to the group's second-biggest venue in Adelaide were subdued as capacity restrictions and domestic border closures in South Australia persistent for most of the first half of fiscal 2022. But we continue to view these as short-term issues, and we expect SkyCity to bounce back when restrictions ease. SkyCity's long-dated and exclusive licences in Auckland and Adelaide create a regulatory barrier to entry, underpinning the firm's narrow economic moat, and position the business well to participate in the recovery as restrictions ease. With a balance sheet well-positioned to weather the storm, we think current depressed prices present an opportunity for patient investors to gain exposure to a high-quality gaming business at a discount. However, the path to full capacity is likely to be gradual and material short-term catalysts are lacking. We expect the recovery of SkyCity's EBITDA to its prepandemic levels to take until fiscal 2023.