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SKYCITY Entertainment Group Limited (ASX:SKC) is a New Zealand based gaming company, incorporated in 1994 in Auckland. SKC employees around 5690 employees and with revenues of over $900 million in FY18. The company apart from gaming also operates in hospitality, entertainment, hotel, recreation, etc. in New Zealand and Australia. It also operates casinos.
On 8 November 2018, SKC had entered into a sale and purchase agreement with Delaware North for the sale of SKYCITY Darwin business. The deal was also subjective to obtaining all the necessary approvals from the Northern Territory Government.
Today, the company confirmed to the exchange that the sale of its Darwin business to Delaware North is now unconditional post the satisfaction of all the conditions. The deal is expected to get completed on 4 April 2019.
The companyâs Chief Executive Officer, Graeme Stephens was pleased with the outcome. He believes that the sale is in line with their strategy to sell non-core assets and to deploy capital to assets and businesses which they assume to be better aligned with their long-term strategic objectives.
The sale of SKYCITY Darwin business is expected to fetch SKC an amount of A$188 million. The company is selling 100 percent of the shares in the Darwin business.
Also, the press release highlighted that Little Mindil property, which is situated next to the SKYCITY Darwin site, is not to be part of the deal and it remains with SKC. It would be sold separately. The book value of this property is A$11 million.
The share price of SKC on the day of the first announcement of this deal was at $3.590, and as of today it is trading at $3.710 (as at 3:20 PM AEST, 29 Marchâ19), the stock price has appreciated by 3.34 percent.
Yesterday, the company released an investor presentation. Some of the highlights of the presentation are as follows:
On the Industry trends front, Traditional land-based casinos are exhibiting modest growth those outside Asia. The Capital investment is required to grow/sustain the business and there is a need for considering alternative models to improve returns. Alternative forms of gaming like online, skill-based, AR/VR and entertainment are becoming popular.
On capital allocation front, the company is committed to maintaining BBB- credit rating and intends to maintain current dividend policy, i.e. 80 percent of normalised NPAT. The company has listed out its capital allocation priorities and on top of the list is stay-in-business capex, then growth investments, debt repayments, dividends and finally capital returns. The company intends to stay focused on capital discipline and improving returns.
The company also charted out its key investment themes. The company is seeing significant opportunity to unlock value by leveraging strong platform, focus on leveraging and maximising existing assets/casino licences before going for further expansion and it has a strong management team.
Stock Information:
The stock has delivered a YTD return of 13.62%. On a six-months, three-months and one-month basis, it has provided -0.54%, 8.90%, and 1.94% respectively.
SKCâs market capitalization stands at $2.4 billion. The ASX reported average trading volume is 424,568. The companyâs EPS stood at 0.222 AUD, PE is 16.5x and the dividend yield is 5.11%, as per the latest ASX update.
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