Market News 12 May 2025

Johnny Lee writes:

ANOTHER poor update from Sky City was released to market last week, sending the shares price down 10 percent to fresh lows. The price currently sits at $1.05 per share, valuing the company at around $800 million, similar to Skellerup or Vista Group.

In February, the company published its outlook estimating earnings to land between $225 million and $245 million in August’s full year result. That estimate was a downgrade from the earlier outlook of $245 million to $265 million.

Last week's update confirmed the result would be worse than even February’s downgrade. 

The company noted that gamblers are spending less and less per visit, and increased vigilance on anti-money laundering and harm minimisation programmes was resulting in falling patronage.

In response, the company plans to focus on reducing its costs, while waiting for conditions to improve. The opening of the NZICC next February will also provide opportunities to cross-sell across the company’s portfolio, while longer-term ambitions in the online gambling space continue to evolve.

It has been a fairly miserable few years for Sky City shareholders. The share price predictably collapsed during COVID, and spent the next 18 months enjoying a bounce and almost returned to pre-COVID levels. However, the last four years have seen the company lose 60 percent of its value, following profit downgrades, battles with the regulator and general shifts in societal preferences.

This latter point will be interesting to observe should we see a return to discretionary spending levels. Sky City has a tight grip on physical gambling in New Zealand and has campaigned to the Government to ensure it has a strong presence in the developing online space. 

Only six years ago, Sky City paid two 10 cent dividends a year, had a share price near $4, and was looking to conduct a 5 percent share buy back. Now, dividends are suspended, the share price is barely above $1, and the company is looking to bounce back from a full year loss. 

It has been a remarkable and - since COVID - difficult journey for the company. Believers in a long-term recovery in the entertainment sector have not yet been rewarded, but with a share price well and truly in the doldrums, the company will be hoping to avoid any more downgrades ahead of August’s result.

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THE Commerce Commission has given the nod, and Contact Energy has been granted clearance to purchase its competitor Manawa Energy.

The clearance was undoubtedly a surprise to the market. The share price of Manawa soared after the announcement, and pending an improbable roadblock, will neatly track the Contact Energy share price until implementation.

This is because the takeover is primarily scrip based, meaning Manawa shareholders will receive Contact Energy shares for the majority of the payment. Once this has concluded, it would be fair to expect some degree of short-term selling pressure on Contact Energy – a normal reaction to scrip-based takeovers.

More announcements will come from the three listed companies involved. 

Manawa will hold a shareholder vote to approve the scheme of arrangement. This should be a formality. The majority shareholders of Manawa are Infratil and TECT, which together hold 77 percent of the listed shares. Both parties have already indicated they intend to vote in favour of the proposal.

Contact has previously notified the market of its intention to retire Manawa’s debt. The company will also be issuing a significant number of new shares to Manawa shareholders. Contact will be reviewing its capital structure and debt levels in the wake of this new, combined entity.

And lastly Infratil will see some modest change. The company will receive around $150 million dollars from the transaction, as well as a significant number of Contact Energy shares. 

The Manawa debtholders may in fact face the biggest decision of all, should Contact Energy proceed with its previously stated intention to repay all of Manawa’s listed debt. Between the MNW170, MNW180 and MNW190 bonds, much of the $375,000,000 on issue could be returning to capital markets searching for a home in July.

Perhaps a new Contact bond would be of interest to these investors.

The delisting of Manawa would also usher in a new company to the NZX 50 index. The market capitalisation of companies at this point of the index is probably near $300 - $400 million.

Investors will debate whether this takeover is good for the long-term health of our economy. The takeover received some criticism regarding the level of competition in the electricity market, and whether adding Contact’s financial grunt to Manawa’s asset base and development pipeline would be positive or a negative long-term. Regardless, the approval is final, and the takeover seems set to proceed.

Come July, Trustpower/Manawa’s story on our exchange will end, and another investment option on our exchange ends with it.

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Two new bonds

1. Summerset Group (SUM) has launched a new senior, secured bond offer with a six-year maturity. The interest rate has been set at a minimum of 5.35% per annum, with interest paid quarterly.

Summerset will be covering all transaction costs for this offer, meaning no brokerage charges apply to investors.

Summerset is one of New Zealand’s largest retirement village operators, with over $8.1 billion in total assets, including 6,671 retirement units, 1,299 care units, and more than 8,700 residents across the country. It reported a record $206.4 million in underlying profit over the past 12 months and has a significant land bank for future development.

If you would like a firm allocation, please reply with the amount you wish to invest and your CSN. 

The minimum investment is $5,000.

Applications close at 10am on Thursday, 15 May. 

Payment will be due no later than Thursday, 22 May.

Further details of the offer, including the investor presentation, are available on our website:

https://www.chrislee.co.nz/uploads//currentinvestments/sum060.pdf

Please note that Summerset may scale applications depending on demand.

If you would like a FIRM allocation for Summerset, please reply with an amount and your CSN and we will send through allocations on Thursday.

2. Chorus has launched its first Capital Note offer, adopting a structure similar to those previously used by Contact Energy and Mercury Energy.

The notes have a final maturity date of 2056 but include an optional redemption (repayment) date in 2031. Chorus is likely to repay the notes in 2031 by issuing a new Capital Note at that time and using the proceeds to refinance this offer—similar to Mercury’s replacement of its capital bonds in 2024.

The reason repayment in 2031 is likely is due to the way these notes are treated on Chorus’ balance sheet. For the first six years, the notes are treated as 50% equity, strengthening Chorus’ capital position. After 2031, this equity treatment expires, creating a clear incentive for early repayment.

Further details of the offer will be released on 19 May, including the confirmed interest rate. Current guidance suggests a minimum rate above 5.00% per annum. The offer will close on the morning of 22 May, which is also when the final rate is set.

Chorus has confirmed it will cover transaction costs, meaning no brokerage applies for investors.

Chorus is New Zealand’s national fixed-line infrastructure provider. It maintains the fibre and copper networks used by most broadband providers. It has over 70% fibre uptake in areas where fibre is available, and reported over $700 million in EBITDA for FY2024.

If you would like to register interest for Chorus, please reply with an indicative amount and your CSN. We will be in touch as soon as the full terms are released.

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Travel

Auckland (North Shore) – 26 May – Chris Lee

Auckland (Ellerslie) – 27 May & 28 May am – Chris Lee

Wellington – 28 May – Edward Lee

Lower Hutt – 29 May – David Colman

Napier – 9 June – Chris Lee

Tauranga – 11 June – Chris Lee

Wanganui – 11 June – David Colman

Hamilton – 12 June – Chris Lee

Christchurch – 23 and 24 June – Chris Lee

Ashburton – 25 June – Chris Lee

Timaru – 26 June – Chris LeeAuckland (North Shore) – 25 June – Edward Lee

Auckland (Ellerslie) – 26 June – Edward Lee

Auckland (CBD) - 27 June – Edward Lee

Please contact us if you would like to make an appointment to see any of our advisers.

Chris Lee & Partners