Shares in casino resort operator SkyCity Entertainment Group Limited-Ord (ASX: SKC) have been hammered recently, down over 14% in the last three months. But although 'Mr Market' may have fears about consumer confidence, smart investors should view this as an opportunity of a lifetime.
Here are six huge reasons why SkyCity Entertainment is a buy today:
1. It's cheap!
The 14% drop in share price has wiped off any gains the company had seen in 2014. While this is less than desirable for existing shareholders (like myself), the company can now be picked up for less than 17 times trailing earnings, a bargain given the company's growth prospects and dividend.
SkyCity is not alone in the fall, Crown Resorts Ltd (ASX: CWN) has lost almost 7% over the same period, while shares in Vietnam-based Donaco International Ltd (ASX: DNA) are down 20% as investors fold.
2. It's growing
SkyCity has several growth tailwinds for the next five years. The two most important are the redevelopment of the company's Auckland and Adelaide properties, the redevelopment will include an increased number of gaming machines and tables.
Longer term, SkyCity is set to benefit from the strong forecast population growth in Auckland city, home to its flagship casino and responsible for over half of the company's gaming revenues.
3. It has a sustainable competitive advantage
As a monopoly operator of casino licences in all of its key markets, SkyCity has a core competitive advantage. Although the advantage comes at the cost of higher government regulation and is not infallible (governments can and do change their minds), minimising local competition is an undeniably valuable feature.
4. It is long-term investment friendly
This competitive advantage supports strong, reoccurring free cash flows which are an attractive feature for long-term investors. These cash flows can be used to fund further business growth, either by acquisition or organic means, or can be paid out to investors as dividends.
5. It has a juicy dividend
At its current share price SkyCity has a dividend yield of just over 5%; likely far better than any bank account. This is expected to be maintained at the current rate (NZ$0.20 per share or no less than 80% of annual, normalised NPAT), despite the significant investment in growth projects.
