SkyCity's Bet on Lower High Roller Exposure Pays Off

We raise our fair value estimate for shares in SkyCity by 3% to NZD 3.40 (AUD 3.20) following the release of interim fiscal 2021 results. With border closures leading to virtually nonexistent high roller revenue, and lockdowns and social distancing requirements weighing on domestic earnings, SkyCity reported underlying EBITDA of NZD 120 million, down 22% on the previous corresponding half. But there is room for optimism. With long-dated and exclusive licences creating barriers to entry (underpinning the firm's narrow economic moat), we think SkyCity's Auckland and Adelaide casinos are well-positioned to participate in the recovery as restrictions ease. We expect improvement in the second half and lift our underlying fiscal 2021 EBITDA forecast by 10% to NZD 238 million. As expected, SkyCity declared no interim dividend. However, the firm intends to pay a final dividend and pursue a payout ratio of between 60% and 90% underlying EPS. We now forecast fiscal 2021 dividends of NZD 0.05 per share--we had previously not anticipated dividends until fiscal 2022.