SkyCity: New Zealand Casino License Suspension Likely, but Our Fair Value Estimate Is Unchanged

We maintain our NZD 3.50 (AUD 3.20) per-share fair value estimate for narrow-moat SkyCity Entertainment. However, we now expect SkyCity’s New Zealand casino license will be suspended for 10 days in fiscal 2024, after New Zealand’s Department of Internal Affairs alleged SkyCity failed to comply with its regulatory obligation to monitor continuous play by a customer between 2017 and 2021. We calculate a 10-day gaming suspension in SkyCity’s Auckland, Hamilton, and Queenstown casinos would see fiscal 2024 revenue and EBITDA fall by around NZD 20 million, or AUD 18 million, but make no changes to our longer-term forecasts. We lower our fiscal 2024 EPS forecast by 10% to NZD 0.18 or AUD 0.17. We assume SkyCity’s other operations, including the Adelaide casino and online gaming, will not be affected. Segments likely to be hit by the suspension accounted for 86% of earnings from operations in fiscal 2023.