SkyCity. Photo: RNZ / Marika Khabazi
The casino operator SkyCity's share price is trading at an estimated 50 percent discount to the book value of its assets, which is overly aggressive, according to analysis by brokerage Forsyth Barr.
Most businesses exposed to the domestic economy were struggling with weak business and consumer demand, though SkyCity had been particularly hard hit by the delayed opening of the International Convention Centre (NZICC), as well costly regulatory matters in New Zealand and particularly in Australia, where there were still outstanding issues associated with its loss-making Adelaide Casino.
Forsyth Barr analyst Paul Koraua said SkyCity was expected to outperform its most recent closing share price of 74 cents a share, with a target price of $1.10 a share, which was still 20 percent down on its book value.
A number of NZX listed companies were considered to betrading below their book value, evident by a couple of active takeover offers for Restaurant Brands and Bremworth, which were well above share prices, before the offers were made.
"The problem is that Sky City, like a number of other businesses have been in quite a long earnings downturn - two years of earnings downgrades - which weighs on investor sentiment," Koraua said.
"I think what people are waiting for is for that earnings downgrade to start to slow and turn around before they can start looking forward to say, well, actually, we think the discount is too punitive."
In addition to an improved economic outlook, SkyCity was expected to benefit from the completion of the NZICC and City Rail Link, as well as a cyclical recovery in visitor numbers and discretionary spending.
"The market typically prices things at a discount when they don't believe what the book value is, or they think a company is going to destroy value over time," Koraua said.
"Over the foreseeable future, we still see this as business that is going to be short of its cost of capital, and by definition, destroying shareholder value (but) not to the extent that's being priced by the market."
SkyCity declined to comment, but was expected to have more to say at the upcoming annual meeting on 31 October.
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