- SKC witnessed strong business in first 18 days of reopening of its business
- SkyCity Online Casino was profitable in April 2020 and May 2020
- With the ease of restrictions, SKC’s stock price might witness some positive impacts
- The company has implemented several cost restructuring methods
As the country is moving towards Alert Level 1, most of the investors are seeing this as an opportunity as many businesses will now operate at their normal level. The country has managed to combat the spread of COVID-19. The gaming industry is also very happy with this news and it can be seen in their share price. Let us look at the stock related to the gaming industry in detail.
SkyCity Entertainment Group Limited (NZX: SKC)
SkyCity Entertainment Group Limited is New Zealand’s leading leisure, tourism and entertainment company with iconic status and it is listed in both New Zealand (NZX) and Australian (ASX) stock exchanges.
SKC stated that, on May 14, 2020, it re-opened its New Zealand entertainment, casino as well as accommodation facilities which have their presence in Queenstown, Hamilton and Auckland. Business in the period between 14 May 2020 to 31 May 2020 has been encouraging at the New Zealand properties. Key highlights of these 18 days are:
- The domestic gaming businesses in Hamilton and Auckland have registered good growth, ahead of the company’s expectations, particularly in electronic gaming machines (EGMs), despite restrictions around mass gatherings, limited capacity, and physical distancing requirements;
- EGM revenues in Auckland and Hamilton over the period represented 80% (on a like-for-like basis) of the average daily revenue in the eight months to 29 February 2020;
- Hotel occupancy has averaged around 32% over the period, with much higher occupancy on weekends (up to 90%) due to special offers to customers;
- Average room rates are currently around 35% lower than pre COVID-19 rates;
- Food and beverage revenues have been growing steadily in line with expectations, but remain significantly below pre COVID-19 levels;
- SkyCity Online Casino continues to trade strongly with over 21,000 customer registrations as at 31 May 2020 and was profitable in April and May 2020.
Restructuring of Staff in New Zealand
Despite of the good performance in the early trading period, the company still thinks that its operations will be smaller and will be focussed only domestically in short to medium period and hence its employee base is required to be downsized. The company is part-way through consultation process on the proposal to reduce NZ workforce by approximately 700 rostered (waged) employees, which is intended to make sure that its businesses are well positioned to carry out operations in new post COVID-19 environment. SKC also stated that the restructure is anticipated to be wrapped up by mid of June.
The company anticipates total annualised cost savings of ~$50 Mn after full restructuring gets implemented for salaried as well as rostered (waged) employees (total of approximately 900).
South Australia’s Adelaide Casino Will Remain Closed
In the release dated June 3, 2020, the company stated that its Adelaide Casino remains closed. However, development works on Adelaide Casino expansion project as well as associated master planning projects are progressing well, and they are on-time and on-budget.
Notably, the company has a strong liquidity position with about $330 million of cash and undrawn debt facilities.
Performance Driven by Domestic NZ Businesses
For the six months ended 31st December 2019, the company’s reported revenue stood at $721.7 million, up by 75.4% and reported EBITDA was $407.5 million, up by 174.7%. The key drivers of the company’s 1HFY20 result were a positive performance from domestic NZ businesses on a like-for-like basis. It was offset by significantly weaker IB activity and higher ICT costs. However, normalised revenue stood at $490.9 million, down by 7.9% and normalised EBITDA stood at $153.3 million, down by 10.7%. The domestic businesses represented 95% of 1HFY20 normalised EBITDA.
1HFY20 Overview (Source: Company Reports)
Suspension of FY20 Guidance
In the release dated April 3, 2020, the company stated that, during the lockdown, it was facing almost $90 million in lost revenue per month. The company was experiencing substantial costs such as lease payments, utilities, and labour, with only labour costs of about $20 million per month. SKC has decided a reduction of $15 Mn with respect to the stay-in-business capital expenditure (or capex).
Also, there have been salary cuts of executive ranging from 20% to 40%, which has been volunteered by the leadership team. The company’s Board of Directors has also volunteered to cut its fees by 50%.
The closure requirements were not applied to the construction sites, and therefore, they continued to work on its Adelaide expansion project. Notably, the company withdrew its updated earnings guidance for the year ending June 30, 2020.
On June 4, 2020, the stock of SKC closed the day at NZ$2.97 per share, up by 4.21% on an intraday basis. The stock’s 52-week high and low is $4.15 and $1.14, respectively.