Skycity Entertainment Group Revenues Impacted by a Higher New Zealand Dollar

At its annual general meeting, or AGM, Skycity Entertainment Group provided a trading update and outlook for fiscal 2014. Skycity's performance to date was subdued, and the significant appreciation of the New Zealand dollar versus the Australian dollar did not help matters. We are, however, sticking to our fiscal 2014 and fiscal 2015 profit forecasts of NZD 135 million and NZD 154 million respectively. Our fair value estimate also remains unchanged at NZD 4.60 per share. However, we are raising our Australian dollar fair value to AUD 4.10 per share from AUD 3.60 per share, reflecting the depreciation of the Australian dollar. We believe Skycity's shares are undervalued, with favourable risk/reward characteristics and feel that the market is not pricing in the upside from the expansion of Adelaide and Auckland casinos. We reaffirm our narrow Morningstar Economic Moat Rating due to the firm's long-dated monopoly casino licenses in all the jurisdictions in which it operates.