SkyCity Earnings: Regulatory and Operational Headwinds Set to Linger

Fiscal 2024 was a rough year for SkyCity. Underlying EBITDA fell 8% to NZD 278 million—about 2% below our forecast. The weaker discretionary spending environment is seeing a reduction in spending by the mass market, particularly in gaming machine play. Risk and compliance costs are also mounting, now NZD 22 million for the year—about a tenfold increase on fiscal 2020, about half of which will be ongoing. We lower our fair value estimate by 3% to NZD 3.00 (AUD 2.70) per share due principally to a likely higher hit to revenue from mandatory carded play (particularly in Adelaide) and a slightly higher effective tax rate in New Zealand. Due to a change in New Zealand legislation, commercial buildings with an estimated life span of over 50 years can no longer be depreciated—effectively raising SkyCity’s taxable income moving forward.