SkyCity tipped to reach 75% of pre-COVID revenue in 2021, outlook upgraded to stable

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Credit rating agency S&P Global Ratings has revised SkyCity Entertainment Groups outlook from negative to stable and affirmed its BBB- long-term issuer credit rating on what it describes as faster than expected recovery.

In a Friday note, the agency said SkyCitys earnings recovery is progressing quicker than we anticipated, adding that rising revenues and falling capital expenditure requirements over the next few years will see its adjusted debt-to-EBITDA ratio remain below 3.0x by the end of fiscal 2021.

We anticipate earnings in the fiscal year ending 30 June 2021 will recover to at least 75% of fiscal 2019 levels, and approach near normalized levels in fiscal 2022, S&P said.

According to our forecasts, EBITDA in fiscal 2021 will exceed fiscal 2020 levels, resulting in an S&P Global Ratings-adjusted debt-to-EBITDA ratio of under 3.0x, and further falling to the mid-2x range over fiscals 2022 and 2023. The improvement will likely be supported by the strong recovery in gaming and nongaming revenue, primarily at the companys Auckland and Adelaide assets.

SkyCity recently completed a AU$330 million redevelopment of SkyCity Adelaide.

While work on SkyCitys New Zealand International Convention Centre (NZICC) and Horizon Hotel in Auckland is ongoing, the company recently completed its AU$330 million redevelopment of SkyCity Adelaide. As a result, S&P noted that the groups capex peak has likely passed, with only NZ$119 million spent in the first half of fiscal 2021 (through 31 December 2020) compared with NZ$202 million in 1H20. That leaves around another NZ$160 million to be spent on NZICC which we expect to be spread over the next few years, according to the rating agency.

The stable outlook reflects our view that SkyCity will maintain its solid earnings recovery through the COVID-19 recovery phase over the next two years, and that the company will appropriately manage its remaining development activity in Auckland within our rating tolerances, it added.

SkyCity last week announced it had permanently ceased all dealings with junket operators and would instead bring its international VIP operations in-house following a recent strategic review into its International Business division.