Last week's financial result for gaming operator SkyCity Entertainment Limited (ASX: SKC) was by no means a standout. Revenue was down 4.6%, while net profit after tax (NPAT) was down 7.8% for the six months to 31 December 2013.
However these figures were influenced heavily by exchange rate movements and mask the company's long-term growth potential, it can be snapped up today at what feels like a very attractive price.
With two big projects coming up SkyCity's long-term growth profile sits snugly between the rapid growth of Crown Resorts Limited (ASX: CWN) and the challenging future of Echo Entertainment Group Ltd (ASX: EGP).
This is reflected in the share price movements of the three companies over the last 12 months. Shares in the fast growing Crown have rocketed 47% as the market recognises the significant opportunities open to it in Sydney, Macau and Queensland, while shares in Echo have plummeted 33% as its market position looks set to be eroded by Crown.
Meanwhile shares in SkyCity are plodding along slowly, up just 3%. Given the avenues of growth which have opened up for SkyCity in the last year I feel this is a great opportunity to buy a strong company with considerable competitive advantages.
This includes the company's monopoly casino licences in Auckland and Adelaide and the convention centre developments the company is undertaking in both cities in exchange for more favourable operating conditions.
The two projects together will see SkyCity investing almost $800 million. In exchange it will score extensions to casino operating licences and approval to expand gaming machines and table numbers which will drive growing revenues over the long term. The projects are fully funded, so there is no need for further capital raising and with sizeable cash flows SkyCity has stated it is able to continue dividend payments throughout the growth phase.
Foolish takeaway
Of the three big casino operators in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), SkyCity appears to be the most attractively priced given its long-term growth potential. That this growth can come fully funded while retaining dividend payments yielding almost 5% gives me confidence to add more to my portfolio.
