SKC - Sky City

[redzone]

Have a feeling it is getting to that point....

[Snow Leopard]

Occaisionally someone comes up with that great piece of financial wisdom "A rising tide lifts all boats". Which is true except for those boats that spring a leak.
Although I have never heard it, presumably someone somewhere (it could me me, here) has also said "A falling tide drops all boats, except for the ones where they finaly fix the holes up and pump out, and the ones that hit the bottom which obviously don't sink further though they may get stuck in the mud...."

Where was I? Stuck in the mud, right.

Anyways, as the NZX sinks so does most of the companies listed on it, despite the fact that a number of them remain very good companies. If SKC city is hitting bargain category then I am sure there are a number of better bargains.

Actually given their performance, levels of debt etc I never understand why SKC trades at such a high price, is it the cash flow?

regards
Paper Tiger

[Snow Leopard]

...and I did not mention Mainfreight once ;).

[winner69]

Occaisionally someone comes up with that great piece of financial wisdom "A rising tide lifts all boats". Which is true except for those boats that spring a leak.
Although I have never heard it, presumably someone somewhere (it could me me, here) has also said "A falling tide drops all boats, except for the ones where they finaly fix the holes up and pump out, and the ones that hit the bottom which obviously don't sink further though they may get stuck in the mud...."

Where was I? Stuck in the mud, right.

Anyways, as the NZX sinks so does most of the companies listed on it, despite the fact that a number of them remain very good companies. If SKC city is hitting bargain category then I am sure there are a number of better bargains.

Actually given their performance, levels of debt etc I never understand why SKC trades at such a high price, is it the cash flow?

regards
Paper Tiger

Very good PT

I also agree with you that SKC is pretty highly priced.

The paper said a cheeky bid at $5 might be coming soon. Cheeky because it less than the $6 everybody thought would be coming a few months ago

Put youself in the place of a private equity investor ..... even at current price he would need to fork up with $2 billion for the SKC shares and take on SKC's $1 billion of debt ...... thats $3 billion ...... all for a $250M operating cash flow (before capex)

And just imagine would levels of debt a purchaser would have if the purchase was even only moderately leveraged

SKC still think it may happen ..... you never know it just might .... funnier things have before

So redzone might be on to something .... SKC might be a good buy at the moment .... but like PT if this is the case prob better opportunities

[metro]

Is SKC a bargain at present?
Answer: No.

[redzone]

I was looking at a price between $3.90...$4.10 to dip my toes ...might just get there this week....looking to the fed to drop rates by .5 this week also...

[Nitaa]

Is SKC a bargain at present?
Answer: No.why do you think?

[Mr_Market]

Occaisionally someone comes up with that great piece of financial wisdom "A rising tide lifts all boats". Which is true except for those boats that spring a leak.
Although I have never heard it, presumably someone somewhere (it could me me, here) has also said "A falling tide drops all boats, except for the ones where they finaly fix the holes up and pump out, and the ones that hit the bottom which obviously don't sink further though they may get stuck in the mud...."



Warren Buffett has a saying that goes something like - "You only find out who is swimming naked when the tide goes out"

[winner69]

Aussies have written of the chance of a takeover

Casino bid looking like pie in the sky
http://business.smh.com.au/casino-bid-looking-like-pie-in-the-sky/20080114-1ly9.html


Prob means one will be announced this or next week ..... at $6 ... yeah right

[redzone]

the cheaper the stock price gets the stronger the case becomes....the company has been put on the block ...it is for sale...just how much is someone willing to pay is the question...I did dip my toes in yesterday and will drip feed from here on in if it continues to fall...there is one big seller...and has a few left to sell by the looks of it....cant see much further down side really...maybe 3.90 bottom....where are the charts guys???

[Dr_Who]

I am keeping a close on eye on SKC. There will be a time to buy this pup. Waiting for it to form a bottom on the graph.

[redzone]

the eye never lies

[dsurf]

I am keeping a close on eye on SKC. There will be a time to buy this pup. Waiting for it to form a bottom on the graph.

Check your graph!

[peat]

over the last 3 years approx its formed a head and shoulders with the neckline just above 4
should it break 4 then I reckon it could easily find 3

looking at shorter time frame view it should have found support at 4.5 (and it did try ) but it failed. so not looking good imo.

This is a TA perspective but one using different method from Phaedrus.

[bermuda]

The only reason to hold this stock is the chance of a takeover. And this is getting slimmer by the week. Recently I read they were having to cut back costs involving personnel layoffs.
That tells you it is in a cash cow mode with negative horizons. Add in todays news and who would bother.

Far better pickings on the other side of the ditch.

[Sideshow Bob]

Test that statement by buying some Cujo..........

[dsurf]

This company looks doomed doesn't it?

Wouldn't be surprised to see this at $2 within a couple of months.

A company owning a monopoly on NZ casino gambling will only be doomed if it self destructs which it certainly has tried to recently

[redzone]

today is the day for me...earnings will surprise...

[macduffy]

I've held SKC since the placement prior to the float so have had a good run over the years and have partially sold down in the last year or so.
The biggest concern has always been the heavily geared balance sheet and in these days of tighter and more expensive credit this takes on greater importance. Fortunately, the biggest chunk of debt is from US private investors and doesn't fall due until 2012 - 2020. A lot of it is subject to re-pricing long before that, of course.
Given the company's recent poor operating performance and corporate "hiatus" I don't see it making much of a SP recovery, regardless of the state of the market in general.

[beacon]

I might be tempted at $2

[tim23]

cujodog - $2 that would be shocking not suprising!!

[redzone]

I have a feeling someone may be sniffing around at these prices

[winner69]

No surprises in half year announcement as all signalled well before hand

Not selling Adelaide and all suitors seem to have gone away

Shareholders wouldn't want SKC rerated down to a PE of 10-12 would they from the lofty heights of 484

maybe, just maybe, the new boss might get this thing back on the right track

[Steve]

The graph on SKC dont look too hot. I will wait for it to bottom before I get some.

I wonder if Big P could share his insight?! :)

[Phaedrus]

Here you go Steve -
SKC is still in a downtrend. The red arrows are Sell signals.

Buy signals would be generated by :-
(1) A break of the confirmed trendline.
(2) An uptrend (higher High after a higher Low)
(3) A break of the On Balance Volume trendline.
(4) The Relative Strength Index moving above 50.
(5) A break of the 34 day Simple Moving Average.
(6) The 7% Trailing Short Stop being broken.

While none of these have been triggered yet and SKC made a new low just 4 days ago, the downtrend is starting to run out of steam. The most positive sign is the RSI Bullish Divergence (marked in green). You can see that the RSI has been making higher lows while the price was making lower lows. This is a Class A Bullish divergence.

http://h1.ripway.com/Phaedrus/SKC226.gif

[redzone]

this thing is still in undecided space....could go either way....im picking upwards...but then I also bought a couple of weeks ago thinking it was the bottom

[Steve]

Thanks Phaedrus! :)

[peat]

over the last 3 years approx its formed a head and shoulders with the neckline just above 4
should it break 4 then I reckon it could easily find 3

half way there

[Nitaa]

P. Couldnt you say that before the confirmed trend line you can see 2 humps (call it what you like) that can confirm a different trendline. If you wack a line on those then there would have broken the trendline. Later on of course you are then using around 4.38 as your confirmed trendline.

Just my obsevation.

[redzone]

bottom today

[Steve]

bottom today

What makes you think that?

[redzone]

very large blocks of stock married within same broking firm....doesnt normally happen without price moving up....may well be wrong....have been before and no dout will be again

[redzone]

Phaedrus.....is this a break out on the upside???

[Phaedrus]

Phaedrus.....is this a break out on the upside???
No buy signals yet, Redzone. The 6 indicators plotted here have worked very well in the past for this stock and while all are heading up, none have actually triggered yet.

There are signs, though, that this just might be the turnaround. See how volume on the $3.48 low of 27/3/08 was higher than any other day over the 5 months of the downtrend? This looks like a price/volume climax such as are found at significant turning points.

Look also at the green volume bar for the next day, 28/3/08. This was the highest volume "Up" day in the history of the current downtrend. (Red volume bars are down days, green are up days and blue, no change).

Now, the last volume bar shown is for today and as such only accounts for volume up to now (mid-day). Obviously this will be higher by the end of the day and a higher volume than yesterdays would be Bullish as well. (Rising price on rising volume)

http://h1.ripway.com/Phaedrus/SKC331.gif

[redzone]

will take some doing to beat that volume....looks a classsic turn around to me but with today being the last day of the financial year might it could also just be window dressing...

[Phaedrus]

[quote=redzone;192099]will take some doing to beat that volume....quote]

I don't think so - it's not that far below it.......
Fridays volume was 3,358,398
Right now (1.30pm) it is up to 2,983,290

[duncan macgregor]

Last day of the financial year dont expect a normal market today. I would expect a larger volume of shares traded today across the board than normal. SKC i would think with their large debt would continue to downtrend in this economic climate for some time. Bush is about to inflict his economic revival plan any day now so expect the worst. Macdunk

[redzone]

ok...thats a good sign....I couldnt help myself....I averaged out a few....I do have a feeling our $ is about to take a hit....I still hold the view if SKC were to stay down here at these levels and the $ does take a hit,the market the way it is SKC could be picked up very cheap.....by that I mean at least a $ a share cheaper than what may have happened 6 months ago...all about timing I suppose

[redzone]

Phaedius.....looks lke SKC has broken out to me...

[redzone]

this has $4.30 coming

[redzone]

better off taking the shares instead of the divi.....the sp looks very stong ...a very nice recovery...maybe they have secured a buyer for the movie chain....

[Dr_Who]

Wonder whats up with SKC? Must be positive news out soon or just window dressing?

[Phaedrus]

Red arrows mark SELL signals and Green arrows mark BUY signals.

See how well these simple technical indicators are working. They got you out of SKC very close to the high when the uptrend ran out of steam and got you back in again just after the low when the subsequent downtrend weakened and ended.

A note of caution, though. See how, while the uptrend is still very much intact, volume is falling. This fact is reflected by the On Balance Volume plot. The OBV is commonly one of the very first indicators to fire, but you can see that in this case it has still not been triggered even though every other indicator featured here gave Buy signals days ago. The uptrend appears to be losing momentum and should be monitored quite closely.

MvT regards all this as akin to examining chicken entrails and about as useless. Silly man!

http://h1.ripway.com/Phaedrus/SKC48.gif

[Naylz]

Hi Phaedrus.

Have been trying to make head or tail of the TA and cant. Phaedrus any update on those buy signals from a month ago?

cheers
Naylz

[duncan macgregor]

Hi Phaedrus.

Have been trying to make head or tail of the TA and cant. Phaedrus any update on those buy signals from a month ago?

cheers
Naylz Quite simple really the chart shows the price at approx $4-10 it is now $3-92. Go to direct broking web site and play about with super charts. The charts only show you where the price has been with an indication of where it might go next, its up to you to work out if the signal is worth following up on. You will find in falling markets quite a high percentage of false buy signals. Macdunk

[Phaedrus]

Hi Naylz,
Since triggering those Buy signals, SKC has tracked sideways. This should not surprise us too much in view of the falling volume (marked by blue line) we had already noted. This is similar to the situation last October when falling volume (blue line again) showed us that the uptrend was running out of steam. The OBV simply presents this same information in a slightly different manner. The absence of OBV confirmation at the time of the other Buy signals was directly caused by this lack of attendant volume. The OBV has now broken its trendline (circled) but this was done without any real conviction by the OBV merely tracking sideways.

This is just another reminder that the end of a downtrend does not necessarily mean the beginning of an uptrend. Stocks can go into trading ranges that sometimes persist for a long time before an uptrend begins (or the downtrend resumes!)

To make those buy signals "right", price action would need to go above point (2) which would give a higher high after a higher low and thus an uptrend, so at that point can we say that the downtrend has ended.

To make those buy signals "wrong", price action would need to drop below point (1) making a new lower low and continuing the downtrend. Until either of those conditions are met, SKC should probably be presumed to be in a trading range.

http://h1.ripway.com/Phaedrus/SKC56.gif

[ruethewhirl]

Phaedrus, how do you deal with a chart that busts down through its up - trend line when the stock goes ex-dividend?

For example, ENV Envestra, went ex a 4% dividend today, and the price action broke a confirmed up trend line as a result. Do you adjust all the price data to take it into account, or is a broken trendline a broken trend line?

[Phaedrus]

RTW,
The usual practice is to correct price data for dividends. If this was not done, there would be the likelihood of false Sell signals being triggered when stocks went ex div.

[BRICKS]

AS the stock returns to a new low could go back on the radar nothing like a low price to bring in BUYERS..

[peat]

thats optimistic of you Bricks. theres always the possibility that this is a corrective triangle forming which is in fact generally a continuation pattern. 3:50 and 4:00 are critical levels now.

[BRICKS]

WELL, the $3.46 bottom has been breached and still going south its noticed in Oz the share price excluding ex/rate is 5 cents lower than NZ this is a bit of a worry, The sale of Christchurch pub is a bit of a twist of assets to what advantage is not known. the dribble about Darwin Resort is pie in the SKY but off to Hamilton SKY Casino in the next week to check it out but just at the moment NO need to rush in as the price has not stopped its SLIDE..

[Dr_Who]

I did have a look at SKC awhile back, but decided to not buy it. The new CEO doesnt inspire me at all. They need to appoint a new CEO with a vision before I will look at investing SKC.

[redzone]

of all the casinos owned by SKY I am predicting that Hamilton will have the biggest up swing in profit.
They had the barmy army for a week ,V8s,Fieldays etc..surely must have made a difference.

[BRICKS]

WELL , not the best news as Mark Goulopoulos of Tolhurst [SYD] says SELL as the speculation
of a potential takeover of SKY CITY fades and a disappointing 12 months performance and we are noting daily drops in price and as stated the Oz Price is 5 cents down on NZ so we had better hang fire for the MOMENT..

[Dr_Who]

SKC can go much lower from here. It does tell you how bad the economy is out there when a gambling company with a monopoly barks like a dog.

[bermuda]

SKC can go much lower from here. It does tell you how bad the economy is out there when a gambling company with a monopoly barks like a dog.

I am with you Dr Who.

I know that in recession casinos actually do quite well. But something about Sky City makes me twitch. Mostly because I think the suitors have gone away and the reason they went away was because Sky City are having trouble containing their overheads which of course means lower profits.

I would be careful with this one. Hope I am wrong. Cant talk my Bro into selling. Dont hold.

[Dr_Who]

Bermuda.

I was very excited early this year when I saw SKC sp at its low and was on my watchlist. I was more excited to see it was going to appoint a new CEO and selling the movie theaters.

After I heard that the only strategy the CEO had was to lure high net worth big gamblers from asia, I immediately took SKC off my watchlist. A CEO with little to no strategy and a lack of vision doesnt give me any confidence. I decided this was a sell and not a buy. I was verbally abused on ST when I mention this (refer to other threat). As it shows, I am right and the sp will reflect this in the long run.

Good luck to SKC shareholders. I am sure this pup will be a buy in the future, but not until we have a CEO that has a right mix of strategy to grow SKC.

[redzone]

I have to say, I think this now a dog ,with very active fleas....I sold a few weeks ago but bloodied my nose

[moimoi]

a few free shuttle buses from the suburbs should help get the punters in the door....:-)

What i found most disappointing recently was the following in relation to the sale of the cinemas.

""but ultimately failed to be concluded with the party unable to achieve a
satisfactory financing arrangement""

So your telling me that after all this time and effort the board was dealing with a flea with no dough???

Do they not do a bit of diligence on the buyer or what?

Don't tell me the proposed buyer was that "holy glory investments ltd""(or whatever)...the fella operating out of his basement in blockhouse bay who tried to take over RBD a few years back....??

shaking head unknowingly
Moi.

[AJ]

Wow, the price is in free-fall. If the dividend stays around the 24c mark per year. Thats a pretty good return.

[bermuda]

a few free shuttle buses from the suburbs should help get the punters in the door....:-)

What i found most disappointing recently was the following in relation to the sale of the cinemas.

""but ultimately failed to be concluded with the party unable to achieve a
satisfactory financing arrangement""

So your telling me that after all this time and effort the board was dealing with a flea with no dough???

Do they not do a bit of diligence on the buyer or what?

Don't tell me the proposed buyer was that "holy glory investments ltd""(or whatever)...the fella operating out of his basement in blockhouse bay who tried to take over RBD a few years back....??

shaking head unknowingly
Moi.

Having to cut staffing/overheads and selling the Crowne Plaza are enough for me to know that all's not well.

[peat]

should it break 4 then I reckon it could easily find 3



low of 3.17 today so nearly it made it this time....

[bermuda]

low of 3.17 today so nearly it made it this time....


Just sell out and buy a 50/50 split of NZO/PRC and start enjoying yourself.

[peat]

Just sell out and buy a 50/50 split of NZO/PRC and start enjoying yourself.

I thought it was pretty obvious I've been advocating shorting SKC. since about $5 actually. perhaps i need to be even more obvious.

[Dr_Who]

I thought it was pretty obvious I've been advocating shorting SKC. since about $5 actually. perhaps i need to be even more obvious.

You and me both bro. How can someone not make money from a gambling company with a monopoly? SKC goes from one bad management to another. What a dog.

[CAM]

You and me both bro. How can someone not make money from a gambling company with a monopoly? SKC goes from one bad management to another. What a dog.

Makes it a prime takeover target for someone with a few clues then.
Maybe they are just sitting and waiting patiently for it to drop further and get a real bargain.

[Dr_Who]

Makes it a prime takeover target for someone with a few clues then.
Maybe they are just sitting and waiting patiently for it to drop further and get a real bargain.

Na mate. Private equities have run out of money. The buyers have all looked at it and only one was interested. Even the interested party pulled out in the end. Maybe it will be a T/O target again in the future, but not at this stage.

[CAM]

Na mate. Private equities have run out of money. The buyers have all looked at it and only one was interested. Even the interested party pulled out in the end. Maybe it will be a T/O target again in the future, but not at this stage.

Dosn't need to be private equities. What about a corporate raiders of old? The GPG's of this world??. Didn't they have a stack of cash from earlier capital raisings? Admittedly they have spent some on Tower and no doubt poured some into Coates. If I remember correctly Brierleys were involved with this at the beginning before selling out. Maybe there is some value to someone with the cashflows a casino business generates. But like you I agree it is more likely a future option once the management get it heading in the right direction

[redzone]

if it gets to 2.75 and our dollar drops after fridays numbers...yes this and fph and fpa could all be targets.....still plenty of money around ..it comes down to "I will only buy if its a steel"....like the housing market...and every other market ..then one day someone will blow the whistle and we will all be of to the races again...its just... who will blow the whistle.

[AJ]

If companies were willing to do the numbers on SKC at mid $4. Even though they decided against it, they must have really found something they didn't like to not reconsider at low $3

[BRICKS]

THERE an hour clipped them for $400 then the floor walkers start following me around eyes everywhere they hate to loose if they do that for $400 what would they do for $4000 any way its about the same size of a medium Sydney Club would not attract big rollers at all so not much going for them, But they are the only game in town..

Parking they charge to get out bet the suckers that loose would love that plus it was FULL
after hassle to get in it was 10.30am morning rush probable the workers cars, well $$ stuffed it in the wallet and headed back to the ROTORUA Workers Club..

@ $3 bucks not enough DIV to make it an ATTRACTION..

[Snoopy]

Hello from Adelaide :-)

I am over here checking out Sky City's problem child. Saturday night and the gaming tables seemed largely full, with the slot machines probably around 75% ultilised. It wasn't a bad night so no excuse for the facilities not to be well used. The restaurants certainly were and doing a good trade around 9pm.

Friday the previous night was much quieter. Pokie machine utilisation only 50%. The smoking lounge was not that well used so perhaps the smoking ban is having an effect?

SNOOPY

[BRICKS]

Hello from Adelaide :-)

I am over here checking out Sky City's problem child. Saturday night and the gaming tables seemed largely full, with the slot machines probably around 75% ultilised. It wasn't a bad night so no exscuse for the facilities not to be well used. The restaurants ceratinly were and doing a good trade around 9pm.

Friday the previous night was much quieter. Pokie machine utilisation only 50%. The smoking lounge was not that well used so perhaps the smoking ban is having an effect?

SNOOPY

GOOD work Snoopy enjoy yourself but tell us would you invest more at current prices, So try a gamble and let us KNOW.. GOOD LUCK..

[CAM]

Chief Executive Update - Confirmation of FY08 Profit Guidance - Standard and Poor's Investment Grade Rating (BBB-, Stable Outlook) - Debt Profile Update

http://www.directbroking.co.nz/directtrade/dynamic/announcement.aspx?id=1991220

[BRICKS]

THERE forecast is out but the Div is still to low for this market with all its woes this is an income market high prices are OUT.. SKC to head DOWN..

[Dr_Who]

I will look at buying some SKC shares when they replace the CEO with someone who has a vision and strategy to grow existing casino, reduce debt and sell the cinemas.

[BRICKS]

I will look at buying some SKC shares when they replace the CEO with someone who has a vision and strategy to grow existing casino, reduce debt and sell the cinemas.

YOU have told me before let me know when you go something new and FACT..

[AJ]

Whats the divy likely to be then? 10c

To make 21c for the year? $110M * 90% / 472M shares

10c is about 6.6% pa on the current share price. Not as flash as you'd hope after quite a large drop in price already.

[BRICKS]

Whats the divy likely to be then? 10c

To make 21c for the year? $110M * 90% / 472M shares

10c is about 6.6% pa on the current share price. Not as flash as you'd hope after quite a large drop in price already.

YOUR right a big drop and 24 P/E has been well overpriced but to say not many companies to choose from on the NZX still you don't have to pay through the NOSE..

[BRICKS]

WELL will the $2.92 bottom price SKC be broken this week money in the market seems to be drying up for all stocks while they talk about inflation the base interest rate the Reserve Bank will not drop, until that happens the market will SLIDE..

[BRICKS]

WELL the magic number was reached $2.92 but did not go lower as UBS let it be know they
being the largest holder of the company has been selling millions and now below the 4.9% level
so they don't have to tell us now of there position and continued to sell a $8 million lot yesterday.
But as the share price did not fall again means a NEW buyer is out there who is it who cares as the ledger is wide open top 20 only have 48% control, so still say its overpriced its up to you if you chase this DIVIDEND..

[AJ]

Hey Bricks,

Where does your $2.92 number come from? Is this a previous low for SKC?

[BRICKS]

Hey Bricks,

Where does your $2.92 number come from? Is this a previous low for SKC?

YES, it was but today with very light Turnover its gone up and you can tell that UBS is not selling so there is NO need for the price rise as the same conditions still prevail the same applies to GPG..

[AJ]

Massive comeback since UBS finished selling off their holding I guess.

27% in 3 weeks, only 2 down days in the last 14.

The buy side still looks alot healthier than the sell side. Question now I guess is where will the price come to rest. The price seemed pretty happy in the $3.80 - $4 range for the first half of the year, so I could be soon.

[Footsie]

AJ

next time you find out that a big player has finished moving in/out of a stock

can you please post

I missed this SKC move......but gosh for those who got in its beck a heck of ride up.
Well done

personally if i'd got in at 3.00 id be taking profit here

[Snoopy]

Hello from Adelaide :-)

I am over here checking out Sky City's problem child. Saturday night and the gaming tables seemed largely full, with the slot machines probably around 75% ultilised. It wasn't a bad night so no excuse for the facilities not to be well used. The restaurants certainly were and doing a good trade around 9pm.

Friday the previous night was much quieter. Pokie machine utilisation only 50%. The smoking lounge was not that well used so perhaps the smoking ban is having an effect?


Just to add a bit more to my on the spot impressions of 'Sky City Adelaide' six weeks ago.

The casino is sited in the old railway station building. However, that possibly gives a wrong impression. Railways management may long have moved out. But the commuter trains still go to the 'old station'. The situation is analagous to Wellington Railway station. Except there is also a new railway station in Adelaide on the outskirts of town. But that new station is principally there to service the interstate trains: "The Ghan" that runs from Adelaide to Darwin and the "Indian Pacific" that passes through Adelaide on route from Sydney to Perth.

It is true that the old station is not really in what I call the commercial centre of the city for residents. It is however in the tourist district (right over the road from my hotel which was convenient) and adjacent to the river and town hall complex, with the museums, state art gallery and state library within easy walking distance. Furthermore, there is a free tram (actually it's more like a light train) that runs from the 'old railway station' to the main Adelaide business district and vica versa. Before visiting Adelaide I had the impression that the location of the casino was far from ideal. But really, I don't think location is a problem. The casino is easy to get to. I certainly didn't see any "car park full' signs. That made me think that the new car park project (since cancelled) might be of dubious merit. I was surprised how well city founder Captain Willam Light's layout of Adelaide city worked. Adelaide is a city the size of Auckland, but it was seemingly immune from traffic jams, even of the kind I see daily in Christchurch - a considerably smaller place.

The other factor I hadn't fully appreciated was that Adelaide is the slowest growing of the state capital cities (behind Darwin, Perth, Sydney and Melbourne in that order). So there isn't the population push to keep Adelaide moving forward at the same pace as those other capital cities. Interesting as Adelaide was, I think it is fair to say that it is part of the 'secondary tourist circuit' in Australia. You can partly tell that by the restaurants. Dine out anywhere in Sydney and Melbourne and you can more or less guarantee that you will be served by an an ethnic European who has made Australia home or a tourist on an OE working holiday from the Continent. And some of those 'working holidays' can last for several years! In Adelaide, most of the hospitality industry workers are born and bred Australian and, if not, likely to be educated in Adelaide which houses a well respected university (one of three) majority dedicated to the tourist trade.

The Adelaide casino does have a high roller high value tourist element. But in order to prosper my feeling is that it will have to look to the local community. That isn't necessarily a bad thing. But it does mean growth prospects will always be limited, in particular in comparison with Darwin and Auckland. One tip to keep fellow shareholders amused should you ever dine in the 'Norths' ground floor a la carte restaurant. If you are ordering wine for dinner, make it the most expensive bottle you can afford. The more expensive the bottle is, the futher up it is on the 'wine wall' . And it is quite an amusment watching the staff scaling the equivalent of a two story building by ladder to retrieve your wine request!

SNOOPY

discl: hold SKC

[Snoopy]

GOOD work Snoopy enjoy yourself but tell us would you invest more at current prices, So try a gamble and let us KNOW.. GOOD LUCK..


Well Bricks, almost a year has gone by since you made that comment. Since that time I have been steadily increasing my investment in SKC to the extent that I have nearly doubled the number of shares that I own. You picked a bottom of $2.90ish. Well, if managment had not gone ahead with that capital raising earlier in the year you might have been right.

I can't say that my investments in SKC over the last year, or the last three years for that matter, are looking good. The shares I have been issued in lieu of dividends may have been 'tax effective'. But I am well underwater on those dividend entry prices overall (I have 'bought' shares at $5.36, $4.78, $4.53, $4.36, $3.85 and $3.60 since April 2006). My only saving grace are the shares that I bought under the dividend plan at $2.52 earlier this year.

Likewise my 'on market' purchases over the last twelve months at $3.06, $3.23 and $2.90 are all under water too. I managed to snaffle up some more shares under the shareholder top up offer in May at the institutional capital raising price of $2.61. But like everyone else I had my application to buy scaled back. I rectified that late last week by picking up some shares at $2.59 as the market dipped below the top up offer price. Today the share has been trading around $2.62. That is a long way from the $5.50 plus when former CEO Evan Davies responded to any drop in share price with a public news release saying that Sky City was ripe for takeover. I don't think anyone would believe that takeover hype today. But the hot air that has come out of the share price since, has made SKC -I think- an outstanding investment prospect today.

The queues outside of the Lotto shops when 'Big Wednesday' jackpotted a couple of weeks ago brought home to me that the kiwi gamblers instinct is still alive and well, even in these times of recession. I don't see a 'crow about' result coming from SKC this year, despite the encouraging signs from both the Adelaide and Darwin investments. Even next year (FY2010) I would be surprised if the result is any better than 'steady as she goes'. Looking further out than that though I think many investors will be cursing themselves that they didn't stock up on SKC shares at around $2.60 in the middle of 2009 when they had the chance. Even at a reduced annual dividend rate of 18cps that still gives a gross dividend yield of 10% with the promise of better to come. It is investments like SKC that prove that for the long term investor, you don't have to buy and sell to do well.

SNOOPY

discl: hold SKC, average entry price $2.60

[kizame]

SKC is currently in a steep downtrend with OBV also declining steeply.
Good that you are long term,but there are actually stocks trending upwards at the moment,not many,but they are there.

[buns]

Nice post Snoop

I’ve been fascinated over the fall of SKC, and so close to getting in so many times thinking “surely this is the bottom” – I took the plunge the other day at 2.57 to a) To free up my time/stop me watching this dam stock so close b) I’m a long term investor and see no reason why this stock can’t get back to its high post recession/consumer fear.

If the swine flu scare is to hang around this could have adverse impact on people staying away from packed areas. I can’t see this panning out.

I’m looking forward to Auckland’s rugby world cup proposal – all towns involved need to send these in to advertise there offers to tourists, they are based on the WC but essentially future looking at what they are going to do to attract tourists to their town post WC.

Either way the WC is expected to bring $500m + to NZ, and with the majority of it being in Auckland – Sky City should eat a nice chunk of this.

Rumour has it, cinemas are recession proof. I’ve read it from a few sources now - http://www.winnipegfreepress.com/entertainment/movies/movies-popular-in-recession-49169937.html

Looking forward to the cinema results.

[Snoopy]

SKC is currently in a steep downtrend with OBV also declining steeply.
Good that you are long term,but there are actually stocks trending upwards at the moment,not many,but they are there.


Could the OBV be declining steeply because those 'weak holders' who got their shares cheaply in the recent share issue:

1/ have now 'sold out'? -OR-
2/ are no longer able to sell out at a profit?

Just because a share price is trending down kizame, that does not mean it will continue to go down (if that company is making a profit). At some point the downtrend will end. If the share is cheap enough I often buy at or near historic 'support' points. Particularly if that support point co-incides with a significant dividend yield figure, like a gross yield of 10% (based on an estimated annual dividend of 18cps and a share price of $2.60). That kind of SKC return is double what you will get from a bank term deposit these days.

SNOOPY

[Snoopy]

Nice post Snoop

I’ve been fascinated over the fall of SKC, and so close to getting in so many times thinking “surely this is the bottom” – I took the plunge the other day at 2.57 to a) To free up my time/stop me watching this dam stock so close b) I’m a long term investor and see no reason why this stock can’t get back to its high post recession/consumer fear.


Nice timing Buns. With the SKC share up again today, you may have actually picked the bottom! Helped of course by all those TA investors desperately selling out because the share apparently breached the $2.60 support level.

As for the share getting back to the high $5 trading range, I just can't see that happening.
Even if profits return to record levels people are not going to pump up the PE they will pay and consequently share price level up to where it was before. No-one could fund a takeover at those high prices today.



If the swine flu scare is to hang around this could have adverse impact on people staying away from packed areas. I can’t see this panning out.


Swine flu this year is IMO already priced into the share, Buns. And by the time a more virilent Swine Flu 2 is circulating, we will have a vaccine circulating to combat it.



Either way the WC is expected to bring $500m + to NZ, and with the majority of it being in Auckland – Sky City should eat a nice chunk of this.


Yes this is what I am positioning myself for, by buying into SKC now. Everything that happens between now and then will be just noise before the end of the wash IMO.



Rumour has it, cinemas are recession proof. I’ve read it from a few sources now -
Looking forward to the cinema results.


It would be nice if the cinemas turned around. But if you look at the size of those businesses relative to the casinos SKC operates, cinemas are not material to the overall scheme of things - whatever happens. So it is just as well casinos are relatively recession proof too.

SNOOPY

[kizame]

Could the OBV be declining steeply because those 'weak holders' who got their shares cheaply in the recent share issue:

1/ have now 'sold out'? -OR-
2/ are no longer able to sell out at a profit?

Just because a share price is trending down kizame, that does not mean it will continue to go down (if that company is making a profit). At some point the downtrend will end. If the share is cheap enough I often buy at or near historic 'support' points. Particularly if that support point co-incides with a significant dividend yield figure, like a gross yield of 10% (based on an estimated annual dividend of 18cps and a share price of $2.60). That kind of SKC return is double what you will get from a bank term deposit these days.

SNOOPY
Hi Snoopy, as regard to OBV trending down,I would say it would be a combination of both 1 and 2,and maybe 3, that the market is giving this stock a higher risk rating due to the downturn; but regardless of why it is happening,it still is,and in my experience,even though you are with a so called blue chip stock,you just don't know what could happen in this current very uncertain market. I have been caught out in the past,not by averaging down but by holding a downtrending so-called quality stock only to be left with an aweful lot less that I started with.
I currently hold Nuplex which i will dump as soon as it hits my stop loss,I don't care what dividend they pay,but am determined to preserve and grow capital.
The fact you mention support points,lends me to thinking that you do follow some TA,so if that's the case(and I am presuming here)why not wait till you see the stock start a new confirmed uptrend,the best of both worlds,and your divi yield overall will be greater,having purchased all the shares at the cheaper price.Sorry but school of hard knocks has taught me well.

Regards.

[Snoopy]

Hi Snoopy, as regard to OBV trending down, I would say it would be a combination of both 1 and 2,and maybe 3, that the market is giving this stock a higher risk rating due to the downturn;


Well if that is the case, I am willing to bet against the market. During a downturn it is the gold level treats that get hit the worst. The bronze level bonuses, the chocolate bar and the odd flutter, are not so easily given up and often used as palliatives for not being able to afford that big cash splash.



but regardless of why it is happening,it still is,and in my experience,even though you are with a so called blue chip stock,you just don't know what could happen in this current very uncertain market.


Oh I don't *know* what is going to happen in this uncertain market, that is something I fully acknowledge Kizame. But long term SKC are the succesful bidders for the only casino licence in Auckland, and hold the only casino licence in South Australia and in the Northern Territory. So long term, in 8-10 years I am absolutely as certain as I can be that Sky City will still be a leading casino operator. The long term future is IMO nowhere near as uncertain as you think it might be Kizame. And as for the short term future, well if you can afford to hold through the short term uncertainty, enjoying those fat dividend cheques along the way of course, then who cares?



The fact you mention support points, lends me to thinking that you do follow some TA, so if that's the case (and I am presuming here) why not wait till you see the stock start a new confirmed uptrend,the best of both worlds,and your divi yield overall will be greater,having purchased all the shares at the cheaper price. Sorry but school of hard knocks has taught me well.


TA practitioners don't tend to worry about the 'whys' of support points. But these high dividend paying shares do compete with term deposits as a source of income. So IMO the gross dividend yield *is* a highly important figure. Generally I would expect a high quality income earning share like SKC to trade at a couple of yield points above the six month and twelve month bank term deposits. SKC is trading at more than *four* yield points higher than the bank deposit rates. That means there is a pretty big margin of safety in the SKC share price verses term deposits. And that logic applies whether the SKC share price is trending either upwards or downwards.

However, I do agree that as the SKC is liquidity is good, perhaps I could enhance my returns on SKC by using TA. And maybe I yet will! I am thinking of my purchases of SKC over the last year as more of an 'insurance policy', than trying to time my buying point to precision.

SNOOPY

[beacon]

Online gambling competitive risk is increasing.

[Snoopy]

Online gambling competitive risk is increasing.


How short some memories are. Since those who have forgotten the history are often doomed to repeat it, here is a history lesson for you Beacon.

Sky City has been along the electronic gaming road before. This rather upbeat comment is from the FY2000 annual report p9.

"We are very interested in pursuing gaming and entertainment strategies in the electronic sector. To this end in July we announced that we would take a 6.8% stake in Canbet limited , a licensed sports wagering operation based in Canberra. The agreement we have negotiated will allow us, subject to due diligence, to move to a 33% holding in Canbet within the next 15 months."

By the time of the 2004 annual report, Sky City were sounding less enthusiastic. From p9

"Sky City originally invested in ASX listed Canbet in 2000 to secure a strategic investment position within the rapidly developing internet gaming and wagering sector. Whilst internet casino sites have proliferated around the world, it has become clear during the years since 2000 that internet gaming is not a competitive threat to land based casions and the strategic rationale for for SKYCITY's investment in the on-line sector has diminished. Canbet, like many other internet sports wagering operations is experiencing a range of business challenges. The company's financial performance during the 2003/2004 year proved extremely disappointing for all shareholders, including Sky City."

"As a consequence of Canbet's trading difficulties and in anticipation of the proposed merger of Canbet with International All Sports (IAS) of Australia, SKYCITY resolved to write off its investment (a 33% shareholding, on the books at $20.9m) in this company as at 30 June 2004."

I have wondered since what became of Canbet. But it was your comment Beacon that spurred me on to do some internet searching. Canbet has just been sold -again- to a couple of Singaporean investors. This info from a blog at the

http://www.sportismadeforbetting.com/

website.

---------

IAS sells off Canbet
Canbet sold to Yin Khing Investments for $1million

by Scott Ferguson

Hardly a surprise, Canbet has been a lemon for sometime. Back around 2000, Canbet was flying. Licensed and run from Canberra (hence the name), it was a leading brand for betting on US sports, betting tight margins and trading the American way - copy the Vegas line and move it when everyone else does. Move the price a few cents and the scalpers come in to balance up the books. But then they got too ambitious and tried the same formula on European and Australian sports. They failed dismally. They moved the operation to the UK to gain more European clients and make better use of the timezone, but all the while, employing little resource at risk management and trading. A sportsbook valued at over US$20m was going downhill fast.

Then along came tighter regulations in the US, forcing Canbet to cut all their ties with American customers, who had been the entire reason the business was profitable. IASBet came along soon after and bought Canbet for $1m, a huge drop in price compared to their high-flying days. The value for IAS was in the UK licence, which they had been seeking for some time. IAS tried to extend their Australian operations into Canbet but like much of their trading, couldn't get it to work. IAS make virtually all their money from racing and proprietary trading off their brilliant databases and trading models. Their profits from custmers are negligible.

The Canbet operation continued to flounder, losing AU$8.6m in the 2007/08 financial year and another $3.7m in the latter half of 2008. The time had come for IAS to cut their losses and get rid of the lemon that was hurting the value of their share price.

The new owner, Yin Khing Investments, is registered in the British Virgin Islands, with links to Singapore.

--------


A sorry story all round it seems. Still if internet gambling does rise pheonix like again to become a threat, Sky City with their industry experience, are certainly in a position to participate. Purchasing a near bankrupt outfit for $1m would be well within their capital capabilities.

SNOOPY

[beacon]

That is direct competition in gaming you talk about snoopy. The internet gaming world has moved on. Further, you have indirect competition to traditional gaming from the likes of CMC, IGG, Forex betting - and the industry is still naescent.

How recession proof SKC is, we shall know in time. However, let me not be a spoil sport. I have no economic interest in SKC anymore. Just the observations of a tyre kicker.

[ratkin]

Internet betting is my area of expertise and is the field i make my money in.
The bottom fell out of the internet poker market a year or so ago , although consolidation has been good for one or two companies such as poker stars .

Players flock to where the other players are , as they find full tables , its very difficult for new entrants.

As for horse racing and traditional online sports betting companies i would be wary of them all. This is because there is a wagering revolution sweeping the world , its real impact is yet to be felt in australia but it will be.
The revolution is the betting exchange betfair.

Crown hold 50% of betfair australia , and it is their hidden jewel. The other aussie wagering companies are desperate to have betfair banned as they know the product is far superior to anything a traditional bookmaker can offer.

In five years time the betting industry in australia will be a very different beast than it is today.

As for sky they need to concentrate on turning their casino into a must go nightspot which is entertaining for more than pokie machines. They should forget about an online presence , the market is already saturated

[Dr_Who]

As for sky they need to concentrate on turning their casino into a must go nightspot which is entertaining for more than pokie machines. They should forget about an online presence , the market is already saturated

I completely agree.

I did touch on this same strategy a number of posts back. The current CEO has the strategy all wrong. SKC needs to be a one stop entertainment center to attract people who will eventually be a punter in the casino. This is a proven strategy overseas and with SKC having a monopoly it can be a winning strategy here.

I still think the CEO is not the right person for SKC. As soon as he steeps down, I will buy SKC shares.

[ratkin]

Christchurch casino does it better , they might not have much in the way of entertainment , however many people go primarily to use the restaurants .
With auckland casinos bigger size and larger surrounding population ,, there is no excuse not to have topline acts regularly appearing . After all its not like there is much entertainment competition anywhere in the cultureless hell hole

[Snoopy]

Christchurch casino does it better , they might not have much in the way of entertainment , however many people go primarily to use the restaurants .
With auckland casinos bigger size and larger surrounding population ,, there is no excuse not to have topline acts regularly appearing. After all its not like there is much entertainment competition anywhere in the cultureless hell hole

And even less competition now that Sky City has pulled $500,000 worth of sponsorship from Auckland's Starlight Symphony Concert, threatening the future of the event. That was quite a lot of money to satisfy the Aucks. And with sales down at the Auckland casino, the citizen Aucks have now got their comeuppance. Still no doubt the boy racers can put on a show at one tree hill to keep the populace entertained at an appropriate cultural level.

SKC's overdue actions have certainly improved the share price with the share up again today.

SNOOPY

[paul29]

i think sky city is a good buy at the moment

Aspect Huntley has a Recommendation and Valuation Price of $3.40

but an unfavorable economic environment in NZ and Australia will impede earnings growth in the medium term.

[buns]

SKC has been a solid peformer since this post was last visited.

Grown around 10% on some very nice volumes, and on the back of no news (that I'm aware of).. Can charts help us understand if this has peaked or whether it is worth an entry? As most still rate this as undervalued..

[ratkin]

Very solid volume last two trading days. Most encouraging , something has sparked some heavy interest

I dont make decisions based on charts , but if you look at a five year chart for this stock you can see that the stock has for the first time during the entire five year period built a solid base between april and july

All the debt related hammerings / hysteria / fear has dissapeared , helped by the capital raising , as was pointed out in yesterdays sunday star times. Once confidence comes back to world markets you would have to say the price must increase otherwise the stock will sooner or later become a target for takeover

[buns]

Did not expect this - NPAT up on forecast..

The market has reacted to - Up 20 points...

[moimoi]

and therein lies the reason for the past 2 days of increase in volume and price.

[Lego_Man]

Cursing my slowness.

This will make the market take notice - if the global recovery cements we could see some great action.

[ratkin]

Timed that one well, for a change

[JoeBlogs]

Yep, that'll do me for a 1 week trade! Time to take some off the table (so to speak) ;)

[ratkin]

Could be a long uptrend , price has lots of ground to make up , sentiment has now changed for this one

[Lego_Man]

Could be a long uptrend , price has lots of ground to make up , sentiment has now changed for this one

Some comfort - cant always be a bottom picker. This will be on the radar for more folk now and i'll be looking hard to find a good entry point.

[winner69]

Some comfort - cant always be a bottom picker. This will be on the radar for more folk now and i'll be looking hard to find a good entry point.

Seems to be some contradiction in that post Lego

Looking hard to find a good entry point .... don't 'curse your slowness' again .... NOW is the time ..... won't be sub 300 again .... as you say SKC on 'the radar of many folks' which means increasing prices

promise me .... you have another half hour to put that buy order in before close today

It'll be more expensive next week

[minimoke]

and therein lies the reason for the past 2 days of increase in volume and price.and we have no insider trading in NZ?

[ratkin]

Yes legoman , you may feel as if you have missed out but 2.80 to 3.06 isnt a huge climb. Look at the bigger picture , paying 3.00 or 3.10 is hardly going to make much difference in the long term .
If you believe the mood has changed you better jump in because negative sentiment took this one from 5.00 all the way down to 2.30 , no reason why positive sentiment wont take it most of the way back up during the next year or two

[macduffy]

and we have no insider trading in NZ?

Or at least, no system to detect it.

:rolleyes:

[moimoi]

Or at least, no system to detect it.

:rolleyes:

no system that works anyway.

[winner69]

as you say SKC on 'the radar of many folks' which means increasing prices

promise me .... you have another half hour to put that buy order in before close today

It'll be more expensive next week

Legoman .... hope you took advantage of that half hour yestreday ..... the longer you wait the harder it will to find a 'good entry point'

[ratkin]

Where is the price going to settle down at? Can see it inching its way to at least 3.50 before having a rest

[macduffy]

SKC confirm their recovery, announcing NPAT of $115.3m, up 131% on last year's dismal result.

;)

[winner69]

SKC confirm their recovery, announcing NPAT of $115.3m, up 131% on last year's dismal result.

;)

Macduffy - headlines say UP 13% -- upper end of analysts expectations

Presume you have for the $60m writeoff last year of the cinemas

[macduffy]

Macduffy - headlines say UP 13% -- upper end of analysts expectations

Presume you have for the $60m writeoff last year of the cinemas

Yes, the 113% is from the official announcement which regards last year's write off as included in the NPAT number, which of course it is.
Operating profit was in line with expectations, although at the upper end.

:)

[Snoopy]

and we have no insider trading in NZ?


The best way to get insider information is to just go inside. There is nothing secretive about this process. All you need is a pair of respectable shoes, as those Sky City casinos are open to the public.

I recently fulfilled an ambition to inspect Sky City's operation in Darwin. Despite what you may read elsewhere, I think Darwin will be the key to the long term outperformance (or not) of this company.

My visit was brief, an hour and a half on a Wednesday afternoon, but it did give me a first hand insight of what is happening up there.

At the macro level you can forget the 'R' word. There is no recession in the far North of Australia, as evidenced by property prices that are still moving ahead, and those construction cranes reaching up into the downtown skyline. The population of greater Darwin (including Palmerston and Lichfield) is around 120,000 people and is growing at around 2.6% per year. I was a bit worried about Sky City being 'out of town' on the map. However Darwin is a very compact city. 'Downtown' is within walking distance of the casino if you are used to the temperatures.

My first impression of Sky City Darwin is that it is a resort before it is a casino. The bunker like architecture (perhaps a good thing in a hurricane prone zone) is really a base to use the golf course, tennis courts and swimming pool facilities and oh yes the casino that happens to be attached. Sky City Darwin is actually right on the beach, and very attractive Mindil Beach looked too. However, the Northern Territory has these things called salt water crocodiles and also stinger jellyfish which can be lethal. So as attractive as the swimming looks, and as encouraging as the weather is at enticing you to go in, locals just don't swim at this beach, or any beach.

There are several restaurants at Sky City Darwin and there is an amazing Monday/Tuesday/Wednesday lunch deal which lets you each as much as you like from the Buffet restaurant for only $A13. You can then sit overlooking the extensive waterworld of swimming pools while you consume a multi course meal, soft drinks included. After that 'wetting of my appetite' I was disappointed to learn that you had to be a paying hotel guest to take a swimming pool dip. The other type of pool dip was catered for as you could play Keno during lunch if you had to. Perhaps I ate a bit too much or ate the wrong thing, but after I had finished my meal I got a slight tummy upset. It must be said that the casino coveniences, when I had to pay them a quick visit, could have been cleaner. Accommodation wise, I went as far as the hotel foyer. There I saw an impressive line up of tourism award gongs, and the smiles on the faces of the guests did leave me with the impression that it was all genuinely earned.

I had a good walk around the casino area, and was surprised at the number of tables (and pokie machines) being used in the middle of a hot day. Mind you in Darwin every day is hot (the coldest day of the year equates to some 28 degrees C). So perhaps 3pm on a Wednesday afternoon is just the time to be inside?

There had been some refurbishment of the playing area just recently. But without the 'before' experience, it looked like all of the money had been spent bringing the building up to where it should be. I got no 'wow' effect. One thing that was just getting the finishing touches while I was there were the new 'smoking balconies', all ready for when the smoking ban comes in to the Northern Territory. These look like they will work well as they will allow smokers out of the gaming area to not lose the ambience of the Sky City Darwin experience. That means there is interior design flow between the smoking areas and the gaming floor.

Overall then I was pleased with what I saw, while acknowledging that there may be room for improvement in the 'cheap restaurant' food hygiene and toilet cleaning rosters. Anyone else been up to Darwin to have a look? I would be interested to hear how your impressions compare to mine.

SNOOPY

discl: hold SKC

[Nitaa]

Hi Snoppy. I think you views on Darwin is not logical. SKC Auckland has I guess a population base of around 1.4m, Adelaide about 1m people to draw on. In the whole scheme of things Darwin is and should be considered a supplementory add on to their portfolio.

With Singapore building their casino, Malaysia having one in Genting Highland, the close proximaty of Maccau in Hong Kong doesnt really make Darwin a primary choice destination for junket and high rollers action. Maybe i missed something but Darwin will not be a company maker or breaker imo. On a different tangent it does increase their exposure into the Australian market but are too small to have an impact on the bigger players (meaning the other big casino operators)there.

[Snoopy]

Hi Snoopy. I think you views on Darwin is not logical. SKC Auckland has I guess a population base of around 1.4m, Adelaide about 1m people to draw on. In the whole scheme of things Darwin is and should be considered a supplementory add on to their portfolio.


Logically you are right Nita. The problem with the logical view, as I see it, is that SKC have had ten years to make something of Adelaide. And despite this years profit improvement Adelaide still doesn't generate anywhere near the profit in overall dollar terms for SKC that Darwin does. Futhermore the Adelaide Casino is not really near the centre of town so it is not an impulse destination. Adelaide is not growing as fast as Darwin, so we can't rely on natural population increase to drive profits in Adelaide in the right direction. Attempts to fix Adelaide ran into planning permission delays, the sticking point of a less generous casino license agreement and the cost of capital not being recovered from those improvements that were made.

Quite a different attitude appears prevalent in Darwin. Up there the local council are right behind Sky City and all their development plans. It sounds incredible but I can see the earnings margin in Darwin rising above the earnings margin in Auckland once the world cup fever has died down in three or four years.

Despite its small population base SKC Darwin is the second biggest earner for SKC right now, behind the Auckland casino/hotel site. Short of massive capital expenditure to move and rebuild the entire Adelaide casino to a modern well located purpose built casino venue, I can't see any other SKC asset usurping Darwin's contribution.



With Singapore building their casino, Malaysia having one in Genting Highland, the close proximaty of Macau in Hong Kong doesnt really make Darwin a primary choice destination for junket and high rollers action. Maybe i missed something but Darwin will not be a company maker or breaker imo.


Darwin has never been a destination for high roller Asian gamblers on a meaningful scale Nita, despite what SKC wants you to believe. SKC Darwin are doing well servicing the locals and the Australian and New Zealand tourists. If the high rollers don't come down from Asia, then SKC Darwin will continue on its current trajectory, which has been very impressive without the need for any Asian high roller roll up.



On a different tangent it does increase their exposure into the Australian market but are too small to have an impact on the bigger players (meaning the other big casino operators)there.


You see the Australian market differently to how I do Nita. I see Adelaide and Darwin as off the main tourist trail and as separate and isolated monopoly markets. Perhaps Sydney and Melbourne casinos compete but IMO they largely do not compete with the SKC casinos within Australia.

SNOOPY

[Nitaa]

Snoopy. You missed some of my points but i give you some credit for your comment on Darwin. I personally worked for SKC for 9 years right from the very beginning. Much of it was well planned by Evan Davies and the exiting of Harrahs as the operator.

With regards to expansion, SKC primary (after establishing locally) goal was to tap into the Australian market. Adelaide was their easiest choice. A safrice in terms of ROI but it gave them credabilty to secure Darwin. Other opportunities would have presented themsleves and they did take it up on the highly failed Canbet. They simply didnt not have enough expertise and quickly crumbled when the leading bookie left.

SKC is still an interesting prospect even more so since they have lowered their debt to equity ratio. There will be some of the bigger players looking at a possible aquisition imo whether a few months down the track or a bit longer.

[ratkin]

I recently fulfilled an ambition to inspect Sky City's operation in Darwin. Despite what you may read elsewhere, I think Darwin will be the key to the long term outperformance (or not) of this company.

My visit was brief, an hour and a half on a Wednesday afternoon, but it did give me a first hand insight of what is happening up there.

SNOOPY

discl: hold SKC


Looks like your inspection of Darwin casino was spot on. Results out today and it the two aussie casinos leading the way in growth terms.
Market seems to like todays result , Overall earnings per share not improved much , but it good steady as she goesw result with nothing bad happening

[Snoopy]

How well have I done out of SKC? I have been a shareholder since the BIL sell out a long 11 years ago. However the median holding time for my holding is just 4 years and 2 months. In those 4.167 years I have received a total of 54.9cps in dividends. A ‘buy and hold’ investor buying at that time would have paid $4.40 per share. My average purchase price is $2.60. So purchase timing, has been brilliant.

My total return has been (2.60) (i^ 4.1667)= (3.16+0.549), where ‘i’ works out at 1.089. This represents a compounding gain of 8.9% per year.

Over that same time period the NZX50 has declined from 4000 to 3300. That represents a loss of:

4000(f^4.1667)=3300, where ‘f’ works out as 0.955.

This represents a compounding loss of 4.5% per annum. My net gain relative to the NZX50 index is therefore 13.4% per year compounding and after tax.

SNOOP

[Snoopy]

My average purchase price is $2.60. So purchase timing, has been brilliant.


How did I get this so right? Being in near the beginning, when BIL was selling out, helped: the entry price then was $1.89 equivalent. Selling some shares when I got top heavy at $5.12 helped too. My third ace was buying as many shares as I could in the 2009 capital raising at $2.61. Then buying some more on the market at a similar price, right at the time almost everyone else was advocating selling out. Buy when a corporate is forced to restructure, sell high and buy in some more when everyone else is short of cash at capital raising time. Perhaps there is a lesson here somewhere?

SNOOPY

[Snoopy]

However the median holding time for my holding is just 4 years and 2 months. In those 4.167 years I have received a total of 54.9cps in dividends.


I should point out that actual dividends declared were much greater than 54.9c over my median owning period. But for a lot of that time the dividend reinvestment plan was operating. So I used those dividends to purchase more shares rather than bank the cash. This is a choice. I cannot bank the cash dividends and use the money to buy shares in the DRP. So I elected to take those dividends as shares which proportionately reduced my cash dividend harvest.

SNOOPY

[Dworsf01]

Glad to hear you've done well, Snoppy. My own small holding of SKC has been a bit of a disaster. Being my first stock purchase (before the GFC) I've watched it's value slowly slip away on account of it's small size (making selling a difficult decision given commission's relative size) and my lack of experience. The SP seems to just be tracking sideways - what's your take on it at present? Worth holding?

[Contrarian]

Gidday
It's a cash cow/flow situation. I go in every so often to loose a bit on blackjack.It is always full of asian housewives inevitably loosing the formulated amount.
I hope the Gummint have their hands full, dealing to the big sins of lungs & livers etc & leave skc to do what they do best, clipping tickets of mugs.

[Snoopy]

Glad to hear you've done well, Snoopy. My own small holding of SKC has been a bit of a disaster. Being my first stock purchase (before the GFC) I've watched it's value slowly slip away on account of it's small size (making selling a difficult decision given commission's relative size) and my lack of experience.


You didn't take advantage of the 2009 shareholder top up opportunity then, where no matter how many shares you held you sent in some money and they issued you some shares at $2.61? As Charlie Brown would say Arrrrgh!



The SP seems to just be tracking sideways - what's your take on it at present? Worth holding?


I am expecting an earnings boost from the World Cup and the Australian operations to keep getting better. Even tracking sideways, you are getting a gross yield of 6.8%. Compare that with what you get at the bank. Looks like a solid hold from where I sit.

SNOOPY

[Dworsf01]

I took part in the top-up, which is the only reason my holding isn't depressingly red. I certainly regret not purchasing more at that price. What you say re: dividends rings true, fortunately for me selling isn't really an option anyway.

[Snow Leopard]

How well have I done out of SKC? I have been a shareholder since the BIL sell out a long 11 years ago. However the median holding time for my holding is just 4 years and 2 months. In those 4.167 years I have received a total of 54.9cps in dividends. A ‘buy and hold’ investor buying at that time would have paid $4.40 per share. My average purchase price is $2.60. So purchase timing, has been brilliant.

My total return has been (2.60) (i^ 4.1667)= (3.16+0.549), where ‘i’ works out at 1.089. This represents a compounding gain of 8.9% per year.

Over that same time period the NZX50 has declined from 4000 to 3300. That represents a loss of:

4000(f^4.1667)=3300, where ‘f’ works out as 0.955.

This represents a compounding loss of 4.5% per annum. My net gain relative to the NZX50 index is therefore 13.4% per year compounding and after tax.

SNOOP

Great though that is I still fail to understand the attraction of shares like Sky City, and the second post on this thread is me saying so.

Now I first posted (http://www.sharetrader.co.nz/showthread.php?760-MFT&p=18417&viewfull=1#post18417) about Mainfreight and claimed to be a holder on 11-Aug-2004. On that day the close was $2.00 if you had simply kept those shares then at todays close of $6.57 and calling today six years later (actually less) your annual compound growth for capital gains alone is 22%. Add in the regular dividend as well and it gets better.

Buying shares with a good yield but poor growth prospects is not the best way to make money.

However I will state that I consider that Mainfreight is currently overpriced.

regards
Paper Tiger

Disc: Own MFT; Do not own SKC.

[Snoopy]

Buying shares with a good yield but poor growth prospects is not the best way to make money.


SKC is trading on an historic PE (based on FY2009) of 15. A PE of 15 means either quite good growth prospects, or a rather secure cashflow with lesser growth prospects.

SNOOPY

[Snoopy]

Now I first posted about Mainfreight and claimed to be a holder on 11-Aug-2004.


The growth of Mainfreight, as I understand it, is based on growing the size of the business by looking for new business relationships based around Mainfreight's core competancies. SKC is now more about working smarter with existing assets and customers. I would argue there is less implementation risk in the SKC strategy verses the MFT strategy. Perhaps the MFT strategy has been 'better', and your results PT would certainly indicate that. But after 5 or so years of consolidation, I would argue that from here SKC growth prospects for FY2012 look very good indeed. I had thought of the Rugby World Cup as a slightly bigger Lion's tour. But it is going to be 5 to 10 times as big. And I think a large chunk of that windfall tourist growth will go to SKC.

SNOOPY

[ratkin]

Sky city a good stock tpo include in a core portfolio of NZ stocks . Low risk , decent dividends and long term growth / takeover prospects

[buns]

Are holders getting a tad fustrated with this one?

Seems while the rest of the NZX recovered quite nicely post the 2nd dip from the recession, SKC never moved. It's trading in the range it did when things were bad bad this time last year when they were in debt trouble, which has now vanished.

The fundamentals have not changed - they have got a large bid going in auckland, and have stated they are actively looking for growth in Aussie.

Just come off the back of a double digit profit rise, and expecting more to come in FY11, a divy over 8.5%

Time to accumulate on this weakness I think

[ratkin]

Patience grasshopper, just keep collecting the diviedends. The sharre price will rise eventually

[buns]

I don't hold, it's just one I'm watching and waiting to enter some time soon.

I've just been wondering if I'm missing something here, as I would expect this to be in the mid 3.50's or at a similar level to where the other NZX 15 stocks moved back to these past few months.

I think SKC will lose the convention centre bid, and hoping the SP will drop again after this, for my entry.

[Snoopy]

Patience grasshopper, just keep collecting the dividends. The share price will rise eventually

This has been my strategy with Sky City, although I have been reinvesting those dividends in the DRP, plus I participated in the 2009 mid year capital raising.

3080

The investment performance of SKC was quite good up until the global financial crisis took hold, at which point the share price started to deteriorate. I should add that this share price chart shows the 'adjusted' share price to take account of the capital raising. The capital raising was what I call the new 'soft' type where the company doesn't have to issue a prospectus provided they seek no more than a certain amount ($5,000 IIRC) from each shareholder, in this instance at $2.61 per share. It is very hard to model this dilution as different shareholders will benefit in reverse proportion to the size of their before issue shareholding. Some of the medium sized shareholders (like me) will inevitably end up being diluted by such a scheme.

In any event, there was some share price weakness immediately after the issue as so called long term investors immediately sold out once they recognised there were minimal stag profits to be made. I was able to take advantage of this and buy more shares on market at very close to the issue price. These purchases mean that looking into my five year performance review window may average holding time for my incremental investment has been one year and three months. The pink line shows my average purchase price.

Readers will see that initially my average purchase price is at a significant discount to average market trend price. However, over subsequent months the share price deteriorated. At the end of my review period (30-09-2010) my average top up purchase price was only just above the market closing price.

Inevitably when a share price declines over a period you cannot be happy with that investment performance. However, the extra capital that I invested in SKC did not decline over the five year period, and only having that capital invested for 15 months of that five year period was a contributing factor.

SNOOPY

[moimoi]

Hmmm...well it took 3 or 4 stabs but seems to have broken thru the $3.50 ceiling..

Will it hold?

[percy]

Very positive progress on the new convention centre.Sounds as though a fair bit of horse trading has been going on.A very important project,for Auckland,New Zealand,and Sky city.More tables for more customers.

[winner69]

Very positive progress on the new convention centre.Sounds as though a fair bit of horse trading has been going on.A very important project,for Auckland,New Zealand,and Sky city.More tables for more customers.

So (quote) "It is estimated that the proposed centre will provide a $90 million annual boost to the economy through new spending by additional international visitors."

Just like the sums for the proposed rail link Auckland were rubbish in Treasury eyes this Sky City should be given a yellow or red card as well

Hell what's the country coming to - a business friendly government

Never mind ... its a goer cause John said so

[percy]

So (quote) "It is estimated that the proposed centre will provide a $90 million annual boost to the economy through new spending by additional international visitors."

Just like the sums for the proposed rail link Auckland were rubbish in Treasury eyes this Sky City should be given a yellow or red card as well

Hell what's the country coming to - a business friendly government

Never mind ... its a goer cause John said so

Yes I agree with you and John ...it's a goer.

[CJ]

It was always the obvious choice out of the 5 options unless political medling got in the way. Luckily (for SKC), the recession/earthquakes mean they have gone for the fullly funded option and not the ones that would ask for money (from memory - by the Auckland city council at aotea square, maori on the railway land, IFT on the bus depot land and the one by the elislie convention center)

[JemT]

I valued SKC somewhere between $3.59 (using a DCF model, which had rather conservative assumptions- 2.8% terminal growth, ~10-11% WACC) and $3.75 on a P/E basis (using an average over a range of other casinos such as Tabcorp). It has some decent possibilities for growth, but it does need to spend relatively large amounts on facilities etc, despite the bulk of its revenue seemingly coming from committed gamblers who are attracted by the tables not so much the facilities they are contained in. There seems like more that management could do wtih all of the cash coming in.

[percy]

I valued SKC somewhere between $3.59 (using a DCF model, which had rather conservative assumptions- 2.8% terminal growth, ~10-11% WACC) and $3.75 on a P/E basis (using an average over a range of other casinos such as Tabcorp). It has some decent possibilities for growth, but it does need to spend relatively large amounts on facilities etc, despite the bulk of its revenue seemingly coming from committed gamblers who are attracted by the tables not so much the facilities they are contained in. There seems like more that management could do wtih all of the cash coming in.

I see them trying to position themselves in Adelaide and Auckland in the "event" or "where it happens" centre. No use having your business miles away from "the action". Having the convention centre as part of the SkyCity complex achieves this.Their approach with the Adelaide sports complex will funnel people Sky's way.As in most businesses location is most important.Activity breeds activity.

[JemT]

Of course it is not in doubt that they need to spend large amounts on these (rather nice if I may say) projects. It is just that they do seem to need a relatively long period to pay themselves back. SKC does not make much from conferences, but they will make a lot more if they can add some extra gaming tables into the mix when they build the contre. In Adelaide they are doing the same thing lobbying the govt- saying we will spend $400m on this development if you agree to lower gaming taxes for us. It is these things that make the investments worthwhile.

[percy]

The convention centre will make no profit for SKC.Convention centres need council or government backing,because you can not get a reasonable return on capital.But they bring a lot of visitors to the city.
So the reasons for SKC to put up the money are; attract people to their area,govt extends their licence,and they gain more gaming tables.This is the only way they can expand and remain the only casino in Auckland.

[modandm]

SKC Financial Result due in August so I just wanted to touch base on this stock. It is one of my key NZ core portfolio positions.

Fundamentally I like the story - good management good PE and yield monopoly casino etc with upside from
- Favorable regulatory changes
- Growth in Chinese tourism
- Growth in VIP market share
- Growth or takeover of Australian operations
- Takeover of NZ operations

Technically the stock has been in a nice uptrend since Sept-10 and you can draw a nice channel upwards - The SP has just jumped off the lower chnnel trendline in the last few days and seems headed for $3.90.

I'm looking for a continuation of the uptrend and a strong result and FY12 forecast driving the SP over $4.00

Broker coverage:

Mac Bank - $4.05
Goldmans - $4.00
Both Buy reccos

Aegis $3.80 Hold

Be great to hear more discussion on this stock

[percy]

SKC Financial Result due in August so I just wanted to touch base on this stock. It is one of my key NZ core portfolio positions.

Fundamentally I like the story - good management good PE and yield monopoly casino etc with upside from
- Favorable regulatory changes
- Growth in Chinese tourism
- Growth in VIP market share
- Growth or takeover of Australian operations
- Takeover of NZ operations

Technically the stock has been in a nice uptrend since Sept-10 and you can draw a nice channel upwards - The SP has just jumped off the lower chnnel trendline in the last few days and seems headed for $3.90.

I'm looking for a continuation of the uptrend and a strong result and FY12 forecast driving the SP over $4.00

Broker coverage:

Mac Bank - $4.05
Goldmans - $4.00
Both Buy reccos

Aegis $3.80 Hold

Be great to hear more discussion on this stock

I hold,and down side is posible lack of return on major projects ie Auckland,Darwin,and Adelaide.Upside is these projects add to earnings.I like the stories ,and management.I think earnings may still be flat.I expect the WWC will be a good money spinner for SKC.Not expecting a lot in the short term.The major projects mean the company knows what and where they see growth.

[JemT]

SKC is a client of Goldman's. Personally I think that many of the above expectations are priced into the shares already, and I would say it is a good stock, but perhaps not a bargain at ~$3.80.

[macduffy]

From The Herald:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10740844

[winner69]

From The Herald:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10740844

Good eh ..... plenty of money to be made in the future

[percy]

From The Herald:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10740844

I don't think Mr.Clark will be using SKC car park again.
I must admit I find airport car parking too expensive too.I have found myself a nice free legal park a short walk from Christchurch terminals,and take great delight they don't get a penny from me.Trust Mr.Clark can do the same at SKC.Suburban malls with free car parking are the answer.
Customers usually end up having the last laugh.

[winner69]

I don't think Mr.Clark will be using SKC car park again.
I must admit I find airport car parking too expensive too.I have found myself a nice free legal park a short walk from Christchurch terminals,and take great delight they don't get a penny from me.Trust Mr.Clark can do the same at SKC.Suburban malls with free car parking are the answer.
Customers usually end up having the last laugh.


Probably only a matter of time before mall carparks are 'Pay and Display" as well

[percy]

Probably only a matter of time before mall carparks are 'Pay and Display" as well

Not with the competition from on line retailers.

[Snoopy]

SKC Financial Result due in August so I just wanted to touch base on this stock. It is one of my key NZ core portfolio positions.

Fundamentally I like the story - good management good PE and yield monopoly casino etc with upside from
- Favorable regulatory changes
- Growth in Chinese tourism
- Growth in VIP market share
- Growth or takeover of Australian operations
- Takeover of NZ operations

Technically the stock has been in a nice uptrend since Sept-10 and you can draw a nice channel upwards - The SP has just jumped off the lower chnnel trendline in the last few days and seems headed for $3.90.

I'm looking for a continuation of the uptrend and a strong result and FY12 forecast driving the SP over $4.00

Broker coverage:

Mac Bank - $4.05
Goldmans - $4.00
Both Buy reccos

Aegis $3.80 Hold

Be great to hear more discussion on this stock

modandm, you have just blown your cover. It can now be revealed that you are in reality Evan Davies the former SKC CEO. When Evan was in charge, any time SKC showed any weakness in share price, Evan wheeled himself out repeating his 'takeover target' mantra. However, history shows that Evan himself was taken out and fortunately SKC is still with us.

I think it a little sad that the whole SKC company is now regarded by any investor as little more than a casino chip in a game of corporate poker. Personally I would prefer to see SKC remain 'a player' in this market. I would rather hold SKC than any of the Australian market gambling shares. The expansion into Australia got off to a bad start in Adelaide. But I am fairly sure the Darwin acquisition will prove very shrewd. And even Adelaide may yet come right if SKC can work with local government and make the old Adelaide railway station area more of a destination, in accordance to the ambitious paper plans.

The uptrend you refer to is I think people focussing on RWC and the tourism spin offs. I think that profits will fall back post RWC, but maybe not for long. This company has more management momentum that the market gives it credit for, IMO. Perversely I believe SKC is losing VIP market share to new casinos in Macau. However the overall VIP market is so strong that even losing market share in the future will produce a growth in VIP gambling profits for SKC.

As to the question is $3.80 good value, perhaps not. Potential shareholders should have bought in the so called downtrend during the last capital raising at around $2.60, which gave a great dividend yield. That's what I did and this is the reason I am now sitting pretty on my SKC holding.

SNOOPY

[macduffy]

SKC NPAT up 21%

http://www.stuff.co.nz/business/industries/financial-results/5458334/SkyCity-pokie-revenue-rebounds

Those carparks must be full!

[troyvdh]

...a bit out of left field...and believe me I have no issue about folk making a dollar or two...but I have often wondered how clever/sophisticated one needs to be to take dosh from the most vulnerable in our society...I once drove around the casino...it looked like a barn/warehouse...what Ive heard that inside aint that pretty inside either......is it true that a few years back SKC actually won an award ...for "exceptional achievement".....it is/has been often stated that in hard times folk gamble...excuse me...I find that quite sad...sure being a nurse...this could be an expected response...what i find trully appawling is that these places actually employ folk to "hone in " on the most vulnerable aspects of human "psyche" of reward/gain....like flashing lights/attention/envy/naked greed...to extract the most dosh out of every person entering the premises....

...just curious...

[waikare]

...a bit out of left field...and believe me I have no issue about folk making a dollar or two...but I have often wondered how clever/sophisticated one needs to be to take dosh from the most vulnerable in our society...I once drove around the casino...it looked like a barn/warehouse...what Ive heard that inside aint that pretty inside either......is it true that a few years back SKC actually won an award ...for "exceptional achievement".....it is/has been often stated that in hard times folk gamble...excuse me...I find that quite sad...sure being a nurse...this could be an expected response...what i find trully appawling is that these places actually employ folk to "hone in " on the most vulnerable aspects of human "psyche" of reward/gain....like flashing lights/attention/envy/naked greed...to extract the most dosh out of every person entering the premises....

...just curious...
Troyvdh you can I take it would rather invest in Ryman Health, having said that maybe the last couple of lines in your statement could apply to RYM also.

[troyvdh]

...if you are being serious...me thinks we are on different planets...

PS...have you looked through SKC...at their clientale...

..pps...have you chatted to folk who live in Ryman establishments....if so fair call...otherwise.,..I remain curious...cheers

[craic]

I made a living and raised a family out of crime. As a probation officer I had to go into a lot of places worse than the Casino (the only one of those I visited was in Monte Carlo). Sometimes as I made my way about one or the other of HM's hotels I would be addressed through the bars by a guest who would tell me my pedigree in the most colourful terms. If I had time I would ask the gentleman the simple question "how much an hour are they paying you to be here ? - I'm getting $xxx an hour". Believe me - there are no poor people in NZ - just those who are told they are poor and that its your fault. The tiny proportion who suffer genuine misfortune are catered for by a whole fleet of ambulances at the bottom of the hill. The clients of the Casino are mostly fools who would find another pit anyway and those who can afford this kind of thrill and would probably set up cockfighting or something similar if the Casino wasn't there. So ends my rant for the day. disc. hold a couple of thousand SKC and would buy more if I wasn't so poor.

[waikare]

...if you are being serious...me thinks we are on different planets...

PS...have you looked through SKC...at their clientale...

..pps...have you chatted to folk who live in Ryman establishments....if so fair call...otherwise.,..I remain curious...cheers


Serious enough to react to your comments, to help put your curiosity at ease, yes I have been to Auckland Sky City, however I am not qualified to make any judgment on the clientele of Auckland casino and nor do I intend to. Secondly I have not chatted to any residents of a Ryman Rest home. But…… my mum was in a rest home run by a religious group, and her
impression was similar to many others that were in the same situation as her, not just her rest home she was in but other homes, had the same view as to your closing sentence “to extra the most dosh out of every person entering the premises”.

I guess that statement would apply to any business, including the IRD.
Disclosure hold RYM and SKC

[percy]

Serious enough to react to your comments, to help put your curiosity at ease, yes I have been to Auckland Sky City, however I am not qualified to make any judgment on the clientele of Auckland casino and nor do I intend to. Secondly I have not chatted to any residents of a Ryman Rest home. But…… my mum was in a rest home run by a religious group, and her
impression was similar to many others that were in the same situation as her, not just her rest home she was in but other homes, had the same view as to your closing sentence “to extra the most dosh out of every person entering the premises”.

I guess that statement would apply to any business, including the IRD.
Disclosure hold RYM and SKC

There is a saying "if you give people what they want,you will get what you want." RYM give people security and safety in their retirement,so RYM may earn a profit.SKC give people entertaiment,excitement and a chance to gamble,so SKC may earn a profit.I stayed away from SKC as an investment for a number of years because I did not want to profit from gambling,until I went to an evening to hear Mark Waller of EBO speak.Also speaking was the CFO of SKC.Alistar .....?..,what a great speaker.He spoke clearly where SKC was,what was happening in the market,and spoke of their growth plans.I was so impressed I forgot my morals and brought the shares.!!!!

[Snoopy]

...a bit out of left field...and believe me I have no issue about folk making a dollar or two...but I have often wondered how clever/sophisticated one needs to be to take dosh from the most vulnerable in our society...I once drove around the casino...it looked like a barn/warehouse...what Ive heard that inside aint that pretty inside either......is it true that a few years back SKC actually won an award ...for "exceptional achievement".....it is/has been often stated that in hard times folk gamble...excuse me...I find that quite sad...sure being a nurse...this could be an expected response...what i find trully appawling is that these places actually employ folk to "hone in " on the most vulnerable aspects of human "psyche" of reward/gain....like flashing lights/attention/envy/naked greed...to extract the most dosh out of every person entering the premises....

...just curious...

I have been a Sky City investor for over a decade. I have always considered gambling as an entertainment and not inherently evil. That is not to deny that there are people with a gambling addiction. A gambling addiction is certainly a problem. Not only to the gambler as often the innocent extended family can be the worst affected. But should you blame Sky City for this?

From p11 of the FY2009 annual report:
“The New Zealand Ministry of Health’s own statistics demonstrate that casinos are not the problem (in causing harm). Yet we are more tightly regulated than gaming machines in clubs and pubs, Lotto and on line gaming operations – a unique situation.”

And page 9
“On 1 July 2009, player information displays (PIDs) became mandatory on gaming machines in New Zealand. Sky City invested over $NZ20m to comply with this regulation. While no discernable machine revenue reduction has been noted to date that can be directly attributed to these new displays, their introduction is certainly not helpful in our endeavour to grow our gaming machine business and compete with our peers (the pubs)”

“According to Gambling Compliance, a UK gaming monitoring company, regulations governing casinos in New Zealand are some of the most stringent in the world – more so than in Australia, the US, Canada and South Africa.”

From AR2007 p49
“At a recent hearing of the New Zealand Gambling Commission it was noted that the Auckland Host Responsibility Programme is “impressive” and by national and international comparison “the best they’ve seen.”

“The harm Minimization Framework draws on the latest research and international public health models. “ “The emphasis is on both preventing harm from occurring in the first place so that customers are able to gamble responsibly, and minimizing harm when it is occurring through early identification and effective host responsibility interactions.”

From AR2007 p50
“This could be something quite informal such as speaking with the customer on a one to one basis – often this is all that is required and customers appreciate the inquiry – to an escalated response when the concern is more serious. This could lead to the customer acknowledging there is a problem and agreeing to be excluded for a period of up to two years.”

Back to p11 in AR2009
“What seems to have been forgotten is that our business is built on enjoyment and fun, not personal and financial stress. It actually makes no sense for us, commercially or morally, to pursue any other than a highly responsible approach.”

To me if we are going to have gambling in NZ, and I don’t see it being outlawed, I think you should have it:

1/ Largely contained and
2/ Administered by an outfit that is big enough to have a host responsibility program over and above what is required by law.

NZ casinos are known destinations. I would much rather see gamblers in professionally run casinos rather than hiding in pubs, TABs and Lotto outlets. I believe that as long as gambling is legal in this country and long may it be so, (I do believe that if gambling was outlawed illegal unregulated underground gambling syndicates would be far worse), Sky City Entertainment is a very beneficial organization to have operating in New Zealand. I feel no moral disquiet in being an investor in it.

SNOOPY

[troyvdh]

...will post when finish night shift...

[Grimy]

If we are going to get into the pros and cons (or morals) of a company, should we invest in power companies that charge a rate that makes the elderly think they need to face a winter without a heater, or an oil company that drills offshore with the associated risks, or a food company whose increasing profit for shareholders is increasing the price of bread?
Anyone who invests in any company is in it for a return. Any return could be lowered for the benefit of the consumer-at the cost to the investor.
I have been in SKC since it was floated to the public. I am not a gambler. I go to Sky City once or twice a year to the theatre for a show. I've had a couple of meals there. Gambling I have spent maybe $10 total. I see a lot of people there having a good night out. The biggest rip-off there is the parking fee, but guess what? I have the option of using another parking building just down the road for a 1/4 of the price-just as people have the option of where they spend their entertainment $.
I have a relation that goes to Sky City everytime she comes to Auckland to play the pokies-loses more than she wins, but enjoys herself. Each to their own.
I haven't seen kids in cars in the carpark. I haven't seen people offering their "services" so they can put a bit more in a machine.
If casinos were shut down tomorrow so be it, but if I can get a return from sensible people having a good night out, then I can sleep okay. There are plenty of systems/support set in place for people that need help. If all past-times that had an element of risk to a section of society's well-being were banned, people would find a way around it. That's human nature. I still occasionally question my investment with SKC, but not for long. I mean, I also have CEN and with the cost of power forever going up and stories of the elderly freezing to save money, I feel worse about owning those.

[craic]

Grimy, do what I did. Drop CEN and Buy into SKC. Then you can watch your money grow instead if diminishing -it's much more fun. It's not all I own.

[macduffy]

Quite a while since anything was posted on SKC. When the interim result is released on 15 February it will be interesting to see what impact the increasing prevalence of online gambling is having on the company. Or are all those ifones etc only used for calling and texting?

;)

[winner69]

Interesting that Sky City now taking the moral high ground and saying that high rise brothels in the neighbourhood is not right ..... suppose they could continue to run the good parts of their business (Sky Tower, convention centre, hotel and restaurants) and close down the evil bits like the casino

They could then make some (credible) moral judgements

[Halebop]

I think they're miffed that they didn't think of it first ... I mean, gambling and prostitution have gone hand in hand since the dawn of the mafia. Big, black mark against SKC mgt that they didn't move on this when the law was changed back in 2003!

I can see the advertising agency focus group - so how do we get the oldest profession into our market friendly gambling concept of "family entertainment" ?

[CJ]

I think they're miffed that they didn't think of it first ... I mean, gambling and prostitution have gone hand in hand since the dawn of the mafia. Big, black mark against SKC mgt that they didn't move on this when the law was changed back in 2003!They are just miffed their rooms wont be used for that purpose anymore - why pay for 24 hours when you only need 1.

[macduffy]

Well, at least my post sparked a bit of life into this thread!

Now....... does anyone have any thoughts on the effect of online gaming on SKC? A recent survey by Southern Cross University in Australia resulted in nearly a third of 6,000+ respondents reporting that they regularly gambled online. OK, they're Australians but SKC has a fair bit of its business in Aussie.

[ratkin]

I see a few people on this thread saying online gambling will have an impact on SKC

i can say this will not be the case , not in a negative way at least.
If anything online gambling will have a positive effect.

For example the big boom in texas holdem poker would not of happened if it wasnt for the internet . The casinos are adding more and more poker tables to accomodate online players who want to have a go at playing "real poker" People who would never of gone to a casino are now drawn their due to their online card experiences

As for online pokies and the like they are a miniscule issue , which is largely a media creation. Even the most desperate of gamblers are reluctant to go down that route , as they simply distrust the honesty of the games. At least going to Auckland or chch casino to play the pokies you know your playing a fair game ,( one you will lose at longterm , but a fair one)

[Baddarcy]

Well, at least my post sparked a bit of life into this thread!

Now....... does anyone have any thoughts on the effect of online gaming on SKC? A recent survey by Southern Cross University in Australia resulted in nearly a third of 6,000+ respondents reporting that they regularly gambled online. OK, they're Australians but SKC has a fair bit of its business in Aussie.

Have to admit i'm more interested in the Auckland Convention Centre and what is going on in Adelaide as i think these are things that can have a positive effect on share price in the short to medium term. Especally the current ongoing negotiations with the NZ govt.

Also saw a news article with a quote from the SKC's boss who was currently in Adelaide, wonder what he was doing there.....

[macduffy]

Thanks for your thoughts, ratkin and Baddarcy.

I take your point, ratkin, although I would think that although online gamblers are generally a different "segment" from those whose who frequent casinos, there will be some effect at the margin from online gaming in future. Will be interesting to see if this happens.

The Adelaide casino is an important part of SKC's business so I would expect the boss to spend some time there. Besides, it's holiday time and he's an Aussie, isn't he?

:cool:

[winner69]

and there's a cricket test in Adelaide as well .... the hob nobs and pollies like to hang out at these places and oak up the free stuff

[percy]

May have been on his bike in the cycle race.!!

[Baddarcy]

The Adelaide casino is an important part of SKC's business so I would expect the boss to spend some time there. Besides, it's holiday time and he's an Aussie, isn't he?

:cool:

There has also been some fairly high stakes negotiating going on between SKC and the South Aust Government about major expansions of the Casino as part of the Adelaide Oval and South Bank redevelopement.

[Snoopy]

Quite a while since anything was posted on SKC. When the interim result is released on 15 February it will be interesting to see what impact the increasing prevalence of online gambling is having on the company. Or are all those ifones etc only used for calling and texting?


An excellent half year result as expected: net profit up 17%. The rugby world cup came through for them, even if management said the $4.7m lift in profit was less than expected. What is encouraging is the 6.9% sales lift in Adelaide, for so long the problem child of the Sky City family. The comment that the momentum has continued at the Auckland site beyond RWC is very encouraging.

I really would have expected, given the outlook, the SKC share price to lift to these $3.65 levels last year. Nevertheless I am happy it has finally got there.

SNOOPY

discl: very happy holder

[percy]

I too was very pleased with the result.Expansion at Auckland is working.Plenty of growth being worked on,Adelaide,Darwin and ofcourse convention centre.They are achieving what the set out to do.Excellent planners.

[Snoopy]

I too was very pleased with the result.Expansion at Auckland is working.Plenty of growth being worked on,Adelaide,Darwin and ofcourse convention centre.They are achieving what the set out to do.Excellent planners.


The share price has now risen to $3.73 today. That is still a PE of just over 15 if you consider $140m the new base profit level. I find it useful to look at other measuring sticks to get this in perspective.

I have a great respect for another Auckland based icon, Auckland International Airport (AIA). But with a PE over double that of SKC I cannot draw up a case for investing in it. Some people consider that AIA is a legislated monopoly, but of course it isn't. I flew to Europe and back out of Christchurch last year and didn't go near it. Sky City on the other hand is a real legislated monopoly. There is a halt on any new casino licences in all the markets in which it operates. If you follow AIA investor logic the SKC share price should be $7.46! No wonder I have no intention of selling out in the imaginable future.

SNOOPY

[percy]

Yes well agree,disagree.ChCh is not the gateway to NZ;Auckland is,even if you don't use it.AIA have a huge land bank to be developed.With greater numbers going through, more chances to clip a much larger growing ticket.If you look at the developement going on near ChCh airport,you realise just how much AIA's land bank is worth.So it is very much a monoply by location.. Same as comparing LPC to POT.
As to whether I would sell SKC to buy AIA or sell AIA to buy moreSKC I have to confess I am happy to hold both.As for selling POT which is getting high to buy LPC,the answer is no,however LPC looks undervalued at present,but I think POT is better situated for growth.

[Snoopy]

Yes well agree,disagree. ChCh is not the gateway to NZ; Auckland is,even if you don't use it. AIA have a huge land bank to be developed.With greater numbers going through, more chances to clip a much larger growing ticket. If you look at the development going on near ChCh airport,you realise just how much AIA's land bank is worth. So it is very much a monopoly by location.


The gateway to NZ is a slogan Percy. Yes more people come through Auckland than any other airport for now. But if AIA increase their prices too much then airlines can go elsewhere. "Air Asia X", for example, does not fly through Auckland. That means for heck of a lot of tourists from Malaysia, AIA is irrelevant already. I think you could argue that every business who doesn't have a competitor housed in the same multi story building they are in is 'a monopoly by location'.

Contrast that to Sky City casino. Try to get a casino licence to build a casino anywhere else in New Zealand and see how far you get. I am not criticizing AIA in any operational sense. They are first class operators. I concur with you on the value of the AIA land bank. My only question is, "Is the price of admission to AIA worth it?", given you could buy into SKC - IMO is a much more entrenched monopoly - at half the AIA admission ticket price?

To further support my case for SKC I would like to point out that unlike AIA, it is not a "one location business" with substantial offshore assets in Darwin and Adelaide, as well as the core business in Auckland.

SNOOPY

[percy]

Try buying land in auckland to set up in opposition.AIA also have interests in Queenstown,Cairns and Townsville airports.
To answer the question which share would I buy if I did not own either,I will have to pass on,as I think the outlook for both is outstanding.

[janner]

Snoopy.

" given you could buy into SKC - IMO is a much more entrenched monopoly - at half the AIA admission ticket price? "

SKC is $3.73 today.. AIA is $2.475..

Not disagreeing or agreeing with your analysis of the two companies..

Just your maths.. $3.73 is not half of $2.475.

The difference in dividend is only 0.7%

What have I missed ??.

[Snoopy]

Snoopy.

" given you could buy into SKC - IMO is a much more entrenched monopoly - at half the AIA admission ticket price? "

SKC is $3.73 today.. AIA is $2.475..

Not disagreeing or agreeing with your analysis of the two companies..

Just your maths.. $3.73 is not half of $2.475.

The difference in dividend is only 0.7%

What have I missed ??.

Sorry if I didn't make myself clear Janner. There is nothing conceptually with your proposition, comparing one share price with another! When I said 'half the admission price' I was talking about the share of the profits attributable to your shareholding verses what you pay to hook into those profits.

If one company has a PE of around 30 (AIA) and another has a PE of 15 (SKC), then for every dollar you put into SKC you will get twice the money out compared to putting that same dollar into AIA (assuming an equivalent dividend payout ratio). Effectively the market is telling us that AIA is twice as good as SKC, and I don't believe that this is true.

SNOOPY

[Snoopy]

Try buying land in auckland to set up in opposition.AIA


Infratil did just that, and found Whenuapai



AIA also have interests in Queenstown,Cairns and Townsville airports.


Never likely to be significant compared to the Auckland asset IMO. Good feeders and dispersed billboards for putting traffic into Auckland, I will grant you that. But I don't consider them any more significant than SKC's casino interests in Queenstown and Christchurch.



To answer the question which share would I buy if I did not own either,I will have to pass on,as I think the outlook for both is outstanding.

Agreed on the superior outlook for both AIA and SKC, but the price of admission to SKC is only half that of getting into AIA. For me that would (has) swung my own shareholding the SKC way.

SNOOPY

[percy]

I think we agree on the outlook for both.The way you are looking at the two companies is correct.
Whenuapai was unfortunately a non starter. So still have to find the land.
Exciting stuff,AIA with hotels etc being built on their land with a huge land bank to develope,while
SKC, if they can get the convention centre deal,make Adelaide developement,and Darwin resort work can take on anything.!!![and most probably will].The next 10,20,30 years will be rewarding.Fun trying to think 20 to 50 years ahead and then working backwards.
I think AIA moat is stronger,but paying twice the amount for it? Now you have me off the fence I am inclined to agree with you to go the SKC way,however should Auckland convention centre deal fall over I think we will have to look at it again.

[janner]

Thanks for your explanation Snoopy..

It all comes down to VALUE for money doesn't it .

[modandm]

however should Auckland convention centre deal fall over I think we will have to look at it again.

Personally i wouldn't be too disappointed. The additional capex and risk around achieving the benefits make the project a huge risk imho - as a shareholder i am concerned. Reading the isto research on SKC most are similarly wary.

Similarly AIA has been putiing off the 2nd runway and new dom terminal for ages - these projects just dont earn economic returns. The best option for shareholders is generally just to eek every last dollar from existing assets and only fund new ones where there is a strong investment case. Whether the case is overly ambitious in regard to the convention centre I don't know - I don't think anyone does - but when its is all said and done in 10 years I think SKC will admit the investment was marginal.

[Snoopy]

Thanks for your explanation Snoopy..

It all comes down to VALUE for money doesn't it .

Exactly janner. Yet for those who are not on board the value is worsening every day. SKC now up to $3.84.

SNOOPY

[Snoopy]

To further support my case for SKC I would like to point out that unlike AIA, it is not a "one location business" with substantial offshore assets in Darwin and Adelaide, as well as the core business in Auckland.


While recently in both Melbourne and Adelaide I took the opportunity to check out both respective casinos. Time for both visits was between 6:30 and 7:30pm on a weekday evening. There was a noticeable presence of people about in both, but not what I would describe as a crowd.

Sky City Adelaide is based in the upper structure of the historic railway station building . The basement floor is I think still used for some commuter trains. There is a new build upmarket restaurant called Norths attached to one side of the building. There are two internally accessed restaurants a buffet and a grill on the top story and a ready food style cheaper restaurant on floor one.

The structure is quite segregated inside with many historic décor features maintained, and there are site plans accessible if you get lost. I would describe the general décor as smart but restrained. There are areas for 1c machines , 5c machines etc., and distinct areas if not distinct rooms for table games. There is an internal wall courtyard smoking area on the top level. The old railway station site is slightly offset and away from the main Rundle Mall shopping street. That means you have to make a deliberate decision to go to the casino. There is no on site accommodation, although the casino is sited within the hotel district.

Crowne Melbourne, by contrast, is a modern (20 year old?) purpose built tower hotel with a sprawling casino and two-level shopping mall beneath. It is sited on the riverbank where many Mebournites and tourists walk. There are many ground level restaurants, cafes and gelato ice cream bars, which from the look and pricing of them are run by renter operators. These eating establishments open to public areas and capture people walking by, people not necessarily going to the casino. The next level up is a mall of mainly upmarket jewellery and clothes shops sited presumably to snare any table winnings. I don’t remember noting any customers in them. These are marble floor and marble wall establishments. Somewhere along that floor you get to walk into the ‘casino proper ‘. My overall memory on entering the casino gaming area was a scene of alternative worldliness.

There were walls of shimmering light and mirror effects. It was unclear to me just what area of the casino I had got into. The slot machines and tables seemed a lot more mixed together than in Sky City Adelaide. Many of the internal casino walls were curved, confusing my orientation. The only real way I knew that I was moving from one ‘room’ to another, was the presence of dual internal guards as I walked from section to section. I wandered into a ‘members’ section and was turned back. However, I think I could have bought a members card for about $25. So I am not really sure what the purpose of having a so-called exclusive sub section of the casino was. Superficially it just looked like the rest of the casino to me! Eventually I found some poker tables downstairs. I found a good internal eating place amidst machines and tables in the ‘East–West’ buffet restaurant. There were dedicated internal a la carte Vietnamese and Korean restaurants too. Also labels alternately written in Chinese characters. I got the impression Crowne was very serious about looking after their Asian guests. As for me, after I had eaten I couldn’t get out of the place fast enough!

I am not trying to judge, which of these two casino establishments is the relative winner. I would say both have been honed to their respective target markets. But it did strike me how very different these two casinos felt to me in terms of atmosphere, and how different the business models must be. I would be interested if others who had visited either/both had similar or contrasting experiences.

SNOOPY

Discl: hold SKC

[winner69]

'a scene of alternative worldliness.' .... I had to think what you meant but I think I got the gist ... my experience is that that Crowne place is horrible

[percy]

I read somewhere the Americans were increasing their presence in Darwin to 2,500 servicemen, up from 500 I think.
May we extend a big welcome to the boys.!!!!

[winner69]

Bit of a hiccup on the earnings front .... prob keep the shareprice under $4 for a few months

[winner69]

Wasn't that a shocker of news story on TV1 tonight .... complete and utter contempt to do the right thing ... and they blame the computer

Looking at the pictures of the Board they would fail a reasonable diversity test .... and completely fail an ethnicity one

Senior management looks the same .... the usual notional woman gets the HR job and thats about it in NZ ..... and they looked pretty pale skinned to me as well

Maybe that's the problem .... they need more women in control

But then again women might be straight up and down and not get involved in any political shannigans and that would not be good for shareholders .... shame eh

[modandm]

Wasn't that a shocker of news story on TV1 tonight .... complete and utter contempt to do the right thing ... and they blame the computer

Looking at the pictures of the Board they would fail a reasonable diversity test .... and completely fail an ethnicity one

Senior management looks the same .... the usual notional woman gets the HR job and thats about it in NZ ..... and they looked pretty pale skinned to me as well

Maybe that's the problem .... they need more women in control

But then again women might be straight up and down and not get involved in any political shannigans and that would not be good for shareholders .... shame eh

Bit of an over-reaction if you ask me.

So they hadn't removed her from the txt sales database - big whoop someone made a mistake get over it.

As for the rant - what do you want - the best people or someone appointed because they are a woman or not white. Get with it man.

[janner]

Agree modandm !!..

[winner69]

I take it you guys are not into this 'diversity' then .... more women and as the shareholders association says were non caucausions and no doubt as some groups would say more diverse age range or even sexuality might come into it.

Whatever that bit on SKC just highlights how far away from reality they are ..... in spite of zillions of support to charities and the community (sponsorship) they obviously just don't get it when it come to understanding what that community thinks .... like you can't blame the computer for allowing a fraudster churn $50 million through the place without noticing.

Just a rant but maybe diversity needs to be replaced with a dose of reality

[CJ]

So they hadn't removed her from the txt sales database - big whoop someone made a mistake get over it.The big issue is not that they sent the text, its that they obviously dont have a fully integrated CRM system. This shouldn't have happened if all their systems were integrated, and if they are not integrated, they aren't getting the full benefits.

Skycity should have mandatory reporting of certain prescribed incidents but in no way should be responsible for problem gambling - too much conflict of interests.

On teh other issue, I dont beleive in diversity for the sake of diversity. The best person should get the job which may or may not result in diversity. The old boys club in my view suggests that the best person doesn't always get the job because different points of view (age, sex, race) should give better results.

[Snoopy]

Yes, there is a confluence of bad publicity on Sky City.

- Earnings are forecast down (but still higher than the previous comparable quarter)
- the COO resigns after a drink driving offence
- Bad PR over problem gambling and the proposed Convention Centre.

For all that, it's still a great company, canny investors may see this as a nice buying opportunity.

The transient effect of this news has passed with SKC up to $3.78 today.

I have been an SKC holder for the whole of this century and over the years there have been surges of optimism which always end up being calmed by business execution reality. The overall experience of holding SKC shares is this: You are buying an excellent asset (the Auckland Casino site) the profits of which are reinvested in other not quite so good assets. In a company structured this way there is always a temptation to hide the underperforming assets behind the Auckland facade.

There is a way to shake out the underlying performance of the 'new' assets. I am going to stretch the definition of 'new' here to include everything bought since the end of FY2001, the last year that SKC was a single site business.

The declared profit for FY2001 was $68.3m, compared to $138.5m for FY2012. That is an improvement of $70.2m in eleven years.

What resources have been used to create these improved profits? There are three sources that the company has drawn on:

1/ Retained Earnings: a total of $308.3m
2/ Share Options Exercised: a total of $98.1m
3/ The FY2009 rights issue(s) which raised $223.4m

Cash on hand at the end of FY2001 was $41.4m, compared to $42.6m at the end of FY2012. Effectively all but $1.2m of those cash resources raised have been utilised.

We know the improvement in profit ($70.2m). So now we can see how efficiently that cash retained by the company has been utilized:

$70.2m/($308.3m+$98.1m+$223.4m-$1.2m)= 11.168%

Of course this improvement has taken place over 11 years. That means the annual compounding improvement is:

(i)^11= 11.168

Solving for 'i' gives a figure of 1.245% compounding per year.

Over that same period New Zealand inflation has been around 2.7% per year.

The conclusion? The sum total of all that SKC has spent since the end of year has been a return amounting to about half the rate of inflation!

OK my calculation is a bit 'back of the envelope' and I think it could be improved. I think I need to incorporate a 'time value of money' into it because not all of that investment capital absorbed by SKC has been working away for the full 11 years. But even with that adjustment it is hard to see SKC is generating any incremental return above inflation.

The main skill of SKC management is to have inherited a golden goose in downtown Auckland that generates enough cash to mask some marginal investments made since. Or am I being too harsh?

SNOOPY

[sharer]

Entirely in agreement with you Snoopy. Besides price improving, SKC has given good income yield all that time, & sailed thru some rough waters.

Your other comments are also noteworthy.
As a general question : how many, or few, NZ companies going into Australia have actually made a success of it? (Personally, i have long kept a special watchlist for these companies; there have been so many commercial disasters, from small outfits all the way thru the humungus).
Probably TEL has destroyed more investor value by arrogantly splashing around in our neighbour's pond than all the rest put together.
Of course it has not all been bad news; my favourites currently are MFT & FRE.

[Snoopy]

Entirely in agreement with you Snoopy. Besides price improving, SKC has given good income yield all that time, & sailed thru some rough waters.

As a general question : how many, or few, NZ companies going into Australia have actually made a success of it?


I don't wish to sound as if I am bagging SKC too much. As you note Sharer, they have provided a good yield over the years. While I think it would be an exaggeration to say that SKC have made a success of Australia, they haven't failed there either. The introduction of franking credits for Australian shareholders last year was proof of that. Both Adelaide and Darwin are operating at about half the margin of Auckland. Darwin is probably the most promising overseas addition as it has yet to recover from the Northern Territory smoking ban.

By my metrics Hamilton has been very successful and is now on par with Auckland from a margin perspective. Of course Hamilton is much smaller in size so only provides a 'top up' to the Auckland result. Even Queenstown is now profitable, after years of making losses.

SNOOPY

[Snoopy]

Solving for 'i' gives a figure of 1.245% compounding per year.

Over that same period New Zealand inflation has been around 2.7% per year.

The conclusion? The sum total of all that SKC has spent since the end of year has been a return amounting to about half the rate of inflation!

OK my calculation is a bit 'back of the envelope' and I think it could be improved. I think I need to incorporate a 'time value of money' into it because not all of that investment capital absorbed by SKC has been working away for the full 11 years.


Just in case any of you haven't figured this out. I am not disappearing into some self created calculative fantasy. The calculation I am doing here corresponds exactly with the way (Mary) Buffett does things and the method is taken straight from one of her books on the 'workings of Warren'.

Overnight I had some second thoughts. Here is the data I am (now) working with

Year, Retained Earnings, Option Equity, Rights Equity

2002, $16.3, $11.0
2003, -$26.2, $4.9
2004, $0.3, $7.0
2005, -$10.8, $8.1
2006, $60.4, $22.0
2007, $71.8, $8.9
2008, $15.3, $26.2
2009, $69.7, $1.5, $223.4
2010, $18.5, $0.3
2011, $19.6, $1.0
2012, $40.1, $0.0

The difference between 'today' and 'yesterday' is that I have got rid of the capital injected over the FY2001 financial year. Why? Because I am interested in what happened after the FY2001 year finished and the capital added to the business in FY2001 was already in place by that stage.

Now here are the 'annual new capital totals', derived from the above figures and divided by the number of years the said capital has been available (a number between 1 and 11 inclusive).

2002: $27.3m
2003: -$19.3m
2004: $6.0m
2005: -$1.9m
2006: $52.5m
2007: 44.0m
2008: $18.8m
2009: $107.1m
2010: $5.1m
2011: $3.8m
2012: $3.6m

Total $246.9m

This now represents the 'average capital available' in the 11 year profit improvement period we are looking at. I believe it was necessary to do this because otherwise I was inherently assuming that all the new capital was available over the entire 11 year period under study, when this was obviously not true.

Cash on hand at the end of FY2001 was $41.4m, compared to $42.6m at the end of FY2012. Effectively all but $1.2m of those new capital resources raised have been utilized.

New Capital Resources utilised= $246.9 - $1.2m = $245.7m

The declared profit for FY2001 was $68.3m, compared to $138.5m for FY2012. That is an improvement of $70.2m in eleven years.

$70.2m/ $245.7m = 28.57% (the return made on the new company equity). But this improvement was stretched out over eleven years.

Now I calculate the annual compounding rate of return from the overall figure

r^11=28.57 => r= 1.356% (still not that flash)

To make things better we might consider that the 2009 rights issue was a one off capital injection shoring up debt in response to the global financial crisis. If you are of that view the calculation changes as follows:

$70.2/ ($245.7-$27.9) = 32.24%

r^11=32.24 => r= 1.371%

Compared to real inflation averaging some 2.7% over the period, things are still not flash.

Yesterday's maths might have been a little ropey, but even with today's refinements the picture has not really changed.

SNOOPY

[winner69]

Interesting stuff Snoopy.

One question what was debt like in 2001 compared to now.

NPX is another co like this .......heaps of new capital etc to buy things to make them bigger and stuff all in the way of extra profit .......makes you wonder eh

[Snoopy]

Overnight I had some second thoughts. Here is the data I am (now) working with

The difference between 'today' and 'yesterday' is that I have got rid of the capital injected over the FY2001 financial year. Why? Because I am interested in what happened after the FY2001 year finished and the capital added to the business in FY2001 was already in place by that stage.


Ooops I have made a slight clanger here. My logic above is right. But in fact it was FY2000 that SKC was last a single site company, not FY2001 as I stated.

I am not going to delete or amend the above calculation though. One might argue that over the first year of any transformational change the new capital employed hasn't had a chance to feed through to any improved results. If you have that view then my above calculation stands.

My corrected calculation will follow.

SNOOPY

[Snoopy]

My corrected calculation will follow.


Year, Retained Earnings, Option Equity, Rights Equity

2001, $33.1, $7.1
2002, $16.3, $11.0
2003, -$26.2, $4.9
2004, $0.3, $7.0
2005, -$10.8, $8.1
2006, $60.4, $22.0
2007, $71.8, $8.9
2008, $15.3, $26.2
2009, $69.7, $1.5, $223.4
2010, $18.5, $0.3
2011, $19.6, $1.0
2012, $40.1, $0.0

Now here are the annual totals, divided by the number of years the said
capital has been available (a number between 1 and 12 inclusive).

2001: $40.4
2002: $25.0
2003: -$17.7
2004: $5.5
2005: -$1.8
2006: $48.1
2007: $40.3
2008: $17.3
2009: $98.2
2010: $4.7
2011: $3.4
2012: $3.3

Total : $266.8

Cash on hand at the end of FY2000 was $37.8m, compared to $42.6m
at the end of FY2012. Effectively all but $4.8m of those new capital
resources raised have been utilized.

Resources used = $266.8 - $4.8m = $262.0m

The declared profit for FY2000 was $60.3m, compared to $138.5m for
FY2012. That is an improvement of $78.2m in twelve years.

$79.2m/ $266.8m = 29.31%

Now to calculate the annual compounding rate of return from the
overall figure

r^12=29.31 => r= 1.325%

If we consider that the rights issue was a one off capital injection in
response to the global financial crisis:

$79.2/ ($266.8-($223.4/9)) = 32.73%

r^12= 32.73% => r= 1.337%

SNOOPY

[Snoopy]

r^12= 32.73% => r= 1.337%


Perhaps the most interesting thing here is that changing the assumptions to something a little different (putting particular emphasis on a one year profit as a starting point has been bothering me) produces an answer that is not radically different to before (the old 1.371% annual compounding return).

Sometimes with this business related algebra, you can still be a little sloppy and yet come up with useful answers!

SNOOPY

[Snoopy]

Interesting stuff Snoopy.

One question what was debt like in 2000 compared to now.

NPX is another co like this .......heaps of new capital etc to buy things to make them bigger and stuff all in the way of extra profit .......makes you wonder eh


Good question Winner.

30th June 2012 Declared Balance Sheet is as follows:

Total assets $1716.2m
Total Liabilities $907.1m

Net Assets $809.1m


30th June 2000 Balance Sheet Position as follows

Total assets $798.5m
Total Liabilities $571.7m

Net Assets $226.8m

Any comments?

SNOOPY

[Snoopy]

30th June 2012 Declared Balance Sheet is as follows:

Total assets $1716.2m
Total Liabilities $907.1m

Net Assets $809.1m


30th June 2000 Balance Sheet Position as follows

Total assets $798.5m
Total Liabilities $571.7m

Net Assets $226.8m



We can calculate from this the relative performance of the Auckland casino site in FY2012 verses FY2000.

The segment result for FY2012 lists the Auckland site assets as worth $720.271m out of $1716.266m of total assets, or 41.97% of total assets.

The apportioned amount of net assets is therefore:

0.4197 x $809.1m = $339.6m

I calculate the net profit of the Auckland site was $92.7m after tax in FY2012.

So we can now calculate the return on equity of the Auckland site as follows:

$92.7m/$339.6m= 27.3%

Back in FY2000 the declared profit was $60.276m. The ROE calculation for year 2000 is therfore:

$60.3m/$226.8m= 26.6%

Therefore looking at the Auckland site alone SKC has actually done very well, growing the business and the return on shareholders equity. If they do the same again with the prospective NZ convention centre expansion, it could be very good news for shareholders.

SNOOPY

[Snoopy]

Therefore looking at the Auckland site alone SKC has actually done very well, growing the business and the return on shareholders equity. If they do the same again with the prospective NZ convention centre expansion, it could be very good news for shareholders.


The 'problem' with SKC is the return from those non-Auckland assets.

The segment result for FY2012 lists the Auckland site assets as worth $720.271m out of $1716.266m of total assets. That means $995.995m of assets are those outside of Auckland. That is 58.03% of assets.

The apportioned amount of net assets is therefore
0.5803 x $809.1m= $469.5m

Net profit attributable to other assets I estimate at $38.6m
ROE = $38.6m/ $469.5m= 8.22%

This is really barely a point or so above the cost of capital. I don't believe we should assume that any investment outside of Auckland would return more than an 8% yield, when valuing SKC from a potential investment perspective.

SNOOPY

[modandm]

Sold my SKC late last week. Just wanted to dip in to mention it.

Don't see it as a bad investment just see better opportunities elsewhere. SKC in my mind is relatively reliable slow growth and it has delivered that for me over the last 3 odd years of ownership returning about 16% + dividends = about 12% pa. This is about in line with the market in general. You are paying a decently high multiple for that relative quality. I do think there is a risk re the convention centre and that it will likely take some time for it to get approved, and earn a decent return on capital. With all the money SKC has spent on it now it seems unlikely they will pull out.

Would consider buying back at lower levels but like I say I beleive I can find sexier, higher growth, higher gain opportunities elsewhere at this point. I see no reason why it shouldn't continue to deliver tidy 10-12% returns over the next 5 years. I certainly still prefer SKC over AIA by some margin.

Good luck to all holders.

[Snoopy]

Sold my SKC late last week. Just wanted to dip in to mention it.

Don't see it as a bad investment just see better opportunities elsewhere. SKC in my mind is relatively reliable slow growth and it has delivered that for me over the last 3 odd years of ownership returning about 16% + dividends = about 12% pa. This is about in line with the market in general. You are paying a decently high multiple for that relative quality. I do think there is a risk re the convention centre and that it will likely take some time for it to get approved, and earn a decent return on capital. With all the money SKC has spent on it now it seems unlikely they will pull out.

Would consider buying back at lower levels but like I say I believe I can find sexier, higher growth, higher gain opportunities elsewhere at this point. I see no reason why it shouldn't continue to deliver tidy 10-12% returns over the next 5 years. I certainly still prefer SKC over AIA by some margin.

Good luck to all holders.

Modandm it looks like your time as an SKC shareholder has been well rewarded. Well done.

I probably have a slightly more negative outlook for the market in general than you do. Personally I think your 10-12% returns for SKC over the next five years will prove optimistic, and I don't see 'the market' getting anywhere near that figure. I see the reason for the premium multiple that SKC trades at to be the relatively small downside risk if the rest of the market goes bad. The way I see it even at a 7% gross annual return (dividends and share price appreciation) as an SKC shareholder I will outperform the market by a couple of return points per year.

Good luck in your search for something sexier. But if you find an alternative opportunity that is mind numbingly boring on the way please let us know.

SNOOPY

[Snoopy]

The 'problem' with SKC is the return from those non-Auckland assets.

The segment result for FY2012 lists the Auckland site assets as worth $720.271m out of $1716.266m of total assets. That means $995.995m of assets are those outside of Auckland. That is 58.03% of assets.

The apportioned amount of net assets is therefore
0.5803 x $809.1m= $469.5m

Net profit attributable to other assets I estimate at $38.6m
ROE = $38.6m/ $469.5m= 8.22%

This is really barely a point or so above the cost of capital. I don't believe we should assume that any investment outside of Auckland would return more than an 8% yield, when valuing SKC from a potential investment perspective.


OK time to put a stake in the turf and pick a valuation for this.

I use the 'Mary Buffett' model of compounding reinvested retained earnings to value my shares. That involves an assessment of ROE which based on the Auckland assets alone is 27%. The problem is the ROE on the other assets is much less, around 8%, so what to do?

As a conservative assumption I have assumed the Auckland based New Zealand Convention Centre will not be built by SKC, but the existing Auckland assets will retain their cash generating ability demonstrated in rugby world cup year. The non Auckland assets I have assumed will earn 8% on apportioned equity.

Putting those figures into my model and using a ten year time projection and using a buy price of $3.80, I believe the annual return on SKC shares will average around 5.12% net or 7.4% gross. This assumes steady dividends reinvested in those overseas properties and a share price in ten years time in the mid four dollar region.

I guess that outlook will sound fairly boring to some. But I favour boring investments, the more boring the better.

SNOOPY

[Snoopy]

As a conservative assumption I have assumed the Auckland based New Zealand Convention Centre will not be built by SKC, but the existing Auckland assets will retain their cash generating ability demonstrated in rugby world cup year. The non Auckland assets I have assumed will earn 8% on apportioned equity.

Putting those figures into my model and using a ten year time projection and using a buy price of $3.80, I believe the annual return on SKC shares will average around 5.12% net or 7.4% gross. This assumes steady dividends reinvested in those overseas properties and a share price in ten years time in the mid four dollar region.


Ok I am now going to 'do an economist' and hedge my bets.

Let us now assume that SKC does get the $350m nod to build the new national conference centre based in Auckland. How do I model that?

Well $350m divided by 577m shares equates to 60.7cps. That includes debt and equity of course. So I have assumed SKC will make an equity contribution to the new convention centre of 30cps.

I have reworked my Mary Buffett model to build the Auckland equity up by 30cps (that will take about 5 years by my reckoning) with the ROE rate of 8% applying to all the excess earnings from the Auckland property after that.

Again based on a buy in price of $3.80, I am projecting an annual return for the next ten years of 6.54% net (9.34% gross). The model assumes a share price in the middle $5 range in ten years time.

By this measure I think a $3.80 share price starts to look moderately cheap. Of course there is some execution risk built into this alternative view. But SKC have proved that past development of the Auckland site along these lines can be done. And I have given them ten years to get it right!

SNOOPY

[Snoopy]

Let us now assume that SKC does get the $350m nod to build the new national conference centre based in Auckland. How do I model that?

Well $350m divided by 577m shares equates to 60.7cps. That includes debt and equity of course. So I have assumed SKC will make an equity contribution to the new convention centre of 30cps.

I have reworked my Mary Buffett model to build the Auckland equity up by 30cps (that will take about 5 years by my reckoning) with the ROE rate of 8% applying to all the excess earnings from the Auckland property after that.

Again based on a buy in price of $3.80, I am projecting an annual return for the next ten years of 6.54% net (9.34% gross). The model assumes a share price in the middle $5 range in ten years time.

By this measure I think a $3.80 share price starts to look moderately cheap. Of course there is some execution risk built into this alternative view. But SKC have proved that past development of the Auckland site along these lines can be done. And I have given them ten years to get it right!


Have had another good look at my SKC spreadsheet, and in particular the growth levels inside and outside of the Auckland home site. based on post financial crisis performance, I have revised my projected return on equity figure of the Auckland site down to 25% (down from 27.3%). The Auckland site has done well, but as a counterpoint to that, management have spent an awful lot of money to make it perform!

I have also raised my 'out of Auckland ROE' from 8.2% to 8.6%. This reflects the significantly improved returns from Darwin and Hamilton in particular. These two changes have meant very little to my ongoing earnings projections though.

I calculate the annual 'convention centre approved return' to be 9.53% (gross, dividends and capital gain), up from 9.34%, based on an SKC share price of $3.80. The 'convention centre somewhere else' return goes up to 7.6% (gross, dividends and capital gain), up from 7.4%.

Perhaps worryingly, given how long these convention centre negotiations are going on, I believe the difference in share price today between 'Convention Centre Yay' and 'Convention Centre Nay' is about 80c per share.

Put another way, if the convention centre is approved, the SKC share price I think would break the $4 barrier. If turned down then I believe something like $3.20 would be closer to fair value.

Usually a share price drop from $3.80 to $3.20 on a quality share like SKC would attract my interest. In this case though I believe such a share price fall in the 'Convention Centre Nay' scenario would probably be justified. Such is the dependence of SKC on the ongoing development of that Auckland site.

On another thread someone suggested that because SKC had lagged the market a bit this year, it might be a good buy. I would say it is currently fairly priced, with a significant downside risk should convention centre negotiations go less than favourably. Be careful out there fellow investors.

SNOOPY

discl: hold SKC

[modandm]

Have had another good look at my SKC spreadsheet, and in particular the growth levels inside and outside of the Auckland home site. based on post financial crisis performance, I have revised my projected return on equity figure of the Auckland site down to 25% (down from 27.3%). The Auckland site has done well, but as a counterpoint to that, management have spent an awful lot of money to make it perform!

I have also raised my 'out of Auckland ROE' from 8.2% to 8.6%. This reflects the significantly improved returns from Darwin and Hamilton in particular. These two changes have meant very little to my ongoing earnings projections though.

I calculate the annual 'convention centre approved return' to be 9.53% (gross, dividends and capital gain), up from 9.34%, based on an SKC share price of $3.80. The 'convention centre somewhere else' return goes up to 7.6% (gross, dividends and capital gain), up from 7.4%.

Perhaps worryingly, given how long these convention centre negotiations are going on, I believe the difference in share price today between 'Convention Centre Yay' and 'Convention Centre Nay' is about 80c per share.

Put another way, if the convention centre is approved, the SKC share price I think would break the $4 barrier. If turned down then I believe something like $3.20 would be closer to fair value.

Usually a share price drop from $3.80 to $3.20 on a quality share like SKC would attract my interest. In this case though I believe such a share price fall in the 'Convention Centre Nay' scenario would probably be justified. Such is the dependence of SKC on the ongoing development of that Auckland site.

On another thread someone suggested that because SKC had lagged the market a bit this year, it might be a good buy. I would say it is currently fairly priced, with a significant downside risk should convention centre negotiations go less than favourably. Be careful out there fellow investors.

SNOOPY

discl: hold SKC

I think your view of the convention centre is a bit off Snoopy (no offence). The way I see things the business is fairly valued as is without the convention centre. Even if the convention centre goes ahead it is unlikely that the ROI will be much above cost of capital and also the payout period is quite some time away and risky, therefore I imagine the market will not rerate the stock higher in the short term. Part of the reason SKC want the convention centre is to extend a licence and further cement their position as a key part of the city. If anything I see it as a defensive investment to protect the company long term.

On the other hand should they not get the convention centre (which I see as highly unlikely), uncertainty and risk will be removed and the company will be looking at increased dividends or perhaps a share buy back once imputation credits are all used up. Overall this could be a significant positive for the stock.

I am still out - but will return one day.

best regards

[Snoopy]

I think your view of the convention centre is a bit off Snoopy (no offence).


Always glad to hear an alternative reasoned viewpoint.



The way I see things the business is fairly valued as is without the convention centre. Even if the convention centre goes ahead it is unlikely that the ROI will be much above cost of capital and also the payout period is quite some time away and risky, therefore I imagine the market will not rerate the stock higher in the short term. Part of the reason SKC want the convention centre is to extend a licence and further cement their position as a key part of the city. If anything I see it as a defensive investment to protect the company long term.


I should add that my model is showing a decrease in earnings for FY2013, (contrary to SKC management projections). This is not the same as forecasting a decrease in earnings as my model is not designed to predict FY2013 earnings with any accuracy. The reason my model is doing this is because last year's ROE (FY2012) was above the recent historical average. 'On average' SKC were batting above their average last year which tends to make them look cheaper than they actually are from a long term perspective, in my view.

You may be correct in your perception of value modandm.

Yes the NZ Convention Centre may not return much more than the cost of capital. But IMO the real benefit of the Convention Centre agreement will be whatever gains SKC can eek out of an new improved Casino licence for Auckland. And I do expect that to be worthwhile. The Convention Centre itself is just an extra to the main game from an SKC earnings perspective.

I have a different opinion to yours on the timeframe too. Short term I agree there are risks. From a long term perspective, with a vision and plan in place, I regard the potential NZ Convention Centre as reducing the Auckland site risk for SKC shareholders. And don't plan on earnings not increasing in the short term either as those RWC improvements bed in.



On the other hand should they not get the convention centre (which I see as highly unlikely), uncertainty and risk will be removed and the company will be looking at increased dividends or perhaps a share buy back once imputation credits are all used up. Overall this could be a significant positive for the stock.


I would say a buyback is unlikely while there are still other capital projects on the table. There is still a possible redevelopment of the Adelaide Casino to think about.

SNOOPY

[modandm]

Always glad to hear an alternative reasoned viewpoint.

I should add that my model is showing a decrease in earnings for FY2013, (contrary to SKC management projections). This is not the same as forecasting a decrease in earnings as my model is not designed to predict FY2013 earnings with any accuracy. The reason my model is doing this is because last year's ROE (FY2012) was above the recent historical average. 'On average' SKC were batting above their average last year which tends to make them look cheaper than they actually are from a long term perspective, in my view.

SNOOPY

1stly ROE is not mean reverting so using it as a predictor of earnings is a bit mad. I personally am not a fan of ROE based valuation methods as I find valuation too sensitive to changes to the assumption of long run sustainable ROE, and also believe the market takes a much more short term view on earnings and multiple comparisons in setting a valuation.

Once you factor in the changes in accounting (revenue recognition) in FY13 I expect 'normalised' earnings to have grown nicely. I think GS had it at 6% for the half year so I would suggest you are too conservative on FY13.



Yes the NZ Convention Centre may not return much more than the cost of capital. But IMO the real benefit of the Convention Centre agreement will be whatever gains SKC can eek out of an new improved Casino licence for Auckland. And I do expect that to be worthwhile. The Convention Centre itself is just an extra to the main game from an SKC earnings perspective.
SNOOPY

Obviously the convention centre is not going to return cost of capital - that is well known. What I am saying is even when you include the benefits to license conditions (increased table games and slots) the overall project is likely to only return marginally more than cost of capital - and this is at risk as modeling may have been overly optimistic. I am saying I view the CC the same as you below:


I regard the potential NZ Convention Centre as reducing the Auckland site risk for SKC shareholders.
SNOOPY



I would say a buyback is unlikely while there are still other capital projects on the table. There is still a possible redevelopment of the Adelaide Casino to think about.

SNOOPY
True - but hardly worth the debate given we are both confident the CC will go ahead.

[modandm]

Hi Snoopy,

Just had a quick check - Goldmans has NPAT up 7% on a normalised basis for FY13.

Also on the 5th of November they released a very good note looking at the marginal increase in revenue for Star City of recent increases in the number of tables and machines. The conclusion was short term margins actually fell as more staff were required (to man less busy tables) - there is much more detail in the note.

They also estimate a 7% return on the project in the early years increasing to 10%+ once the CC is up and running and actually increasing visitor numbers. This shows imho what a low return project this is. I do think the stock is a little undervalued but I really am concerned they get the CC and don't earn the required return from it for many years. Its a real risk.

That said even if the CC disappoints they could still grow eps at 5-10%pa which makes them reasonably valued. They are not a screaming buy in my view at all. Of course if one is only looking at NZX stock I would say it is better than average.

[Snoopy]

Once you factor in the changes in accounting (revenue recognition) in FY13 I expect 'normalised' earnings to have grown nicely.


I think I missed those potential accounting changes for FY2013. Care to enlighten us?

SNOOPY

[Snoopy]

Once you factor in the changes in accounting (revenue recognition) in FY13 I expect 'normalised' earnings to have grown nicely. I think GS had it at 6% for the half year so I would suggest you are too conservative on FY13.


Let me be clear about what I am doing. In simple terms I am looking ten years out and drawing a line from the present with a slope determined by my estimated ROE and the amount of earnings retained. From that line I can draw a projection down that points to where if everything goes according to the straight line plan, earnings will be in FY2013 (for example). In practice SKC is very unlikely to follow this straight line plan. So although my model gives me a figure for earnings in FY2013, the success of my model is not determined by the accuracy of this 'prediction'.

Actually I care not one jot about what happens in FY2013. What I care about is that SKC maintains a commanding presence in the Auckland casino market over the next ten years, that in four years out of five earnings continue to increase and that ROE remains above 15%. Given SKC hold the only licence in Auckland and even if another is granted a theoretical competitor will have trouble matching the scale of SKC , at least initially, then this is a fairly safe bet I feel.

I am almost certain that every individual prediction for every single year of my model life will be wrong. However I expect the errors in my model to balance out over ten years, with some guesses being too high, and others too low. Overall I expect the predictions of my model to be much more accurate that the individual year 'predictions' on the way might suggest.

SNOOPY

[Snoopy]

1stly ROE is not mean reverting so using it as a predictor of earnings is a bit mad. I personally am not a fan of ROE based valuation methods as I find valuation too sensitive to changes to the assumption of long run sustainable ROE,


Here are a few figures for you modandm. I have used the segmented information in the SKC annual reports to generate 'after tax profit' on a divisional basis. Then I have used the segment assets to allocate shareholder equity amongst the various divisions.

The ROE result for the Auckland site over the last four years works out to be:

2012: 22.9%
2011: 24.9%
2010: 25.2%
2009: 26.4%

Now can you see why I used 25% in my future projection model for those Auckland assets?

If we go way back to FY2001 then ROE was 30.4% for the whole company, which pretty much meant 'Auckland'. Auckland today returns less than that. But of course the Auckland casino complex now has gained another hotel, redeveloped gaming assets and a conference centre, albeit on a smaller scale to the one envisaged as a 'National Convention Centre'. Some deterioration in ROE as the whole thing is scaled up might be expected.

ROE in 2008 was much higher at 55.6% (Auckland assets only). But that was before the capital raising to strengthen the SKC balance sheet.

I would argue that in certain circumstances, a roughly constant equity ratio and a business with a strong 'moat', that ROE can be very consistent over a long period.



and also believe the market takes a much more short term view on earnings and multiple comparisons in setting a valuation.


Short term Mr Market can do whatever he likes. I don't care. Long term the weighing machine effect will take hold. I will choose only trade with him at that point.

SNOOPY

[Snoopy]

Let me be clear about what I am doing. In simple terms I am looking ten years out and drawing a line from the present with a slope determined by my estimated ROE and the amount of earnings retained. From that line I can draw a projection down that points to where if everything goes according to the straight line plan, earnings will be in FY2013 (for example). In practice SKC is very unlikely to follow this straight line plan. So although my model gives me a figure for earnings in FY2013, the success of my model is not determined by the accuracy of this 'prediction'.


For your information modandm, my model 'predicts' (sic) overall company earnings per share to follow a pattern something like this, assuming the National Convention Centre is built and operational by FY2017.

FY2012: 24cps (actual)
FY2013: 22.6cps
FY2014: 23.9cps
FY2015: 25.2cps
FY2016: 26.6cps
FY2017: 28cps

Try not to focus on the intermediate points. I am looking at earnings going up around 20% after the Convention Centre changes to the Auckland site are made. Share price at that point, around $4.77. From that point on I expect growth to slow.

SNOOPY

[modandm]

Hi again snoopy.

Did not mean to offend - you have your method I have mine.

From HY analyst reports:
AKl revs down 4.9% on pcp with the majority of decline attributible to hotel rev boost during RWC (down 7m on pcp) and the change to accouting for points with the introduction of the bally systme ($5m). If both are stripped out normalised revenue grew 3.1%.

Cheers

[Snoopy]

From HY analyst reports:
AKl revs down 4.9% on pcp with the majority of decline attributible to hotel rev boost during RWC (down 7m on pcp) and the change to accounting for points with the introduction of the bally system ($5m). If both are stripped out normalised revenue grew 3.1%.


Sorry modandm I still do not follow your post. The 'bally system' seems to be something to do with software integration(?). What does this have to do with revenue recognition? And what are these 'points' that are being accounted for?

SNOOPY

[Snoopy]

Hi again snoopy.

Did not mean to offend - you have your method I have mine.


Of course and no offence taken. Each to their own method. The blast of posts was meant for context and because I was going to be away from the screen for a few days. Hence I wanted to get all facts on the table while things were fresh in my,mind.

SNOOPY

[Snoopy]

Put another way, if the convention centre is approved, the SKC share price I think would break the $4 barrier. If turned down then I believe something like $3.20 would be closer to fair value.

Usually a share price drop from $3.80 to $3.20 on a quality share like SKC would attract my interest. In this case though I believe such a share price fall in the 'Convention Centre Nay' scenario would probably be justified. Such is the dependence of SKC on the ongoing development of that Auckland site.

On another thread someone suggested that because SKC had lagged the market a bit this year, it might be a good buy. I would say it is currently fairly priced, with a significant downside risk should convention centre negotiations go less than favourably. Be careful out there fellow investors.


I hope no-one out there loaded up at $3.80. However, with publicity about the NZ Convention Centre being in the media, and not in a favourable way, the share price has now moved below $3.60. From my perspective this changes the risk reward investment balance.

At $3.60 my model is telling me that SKC is on a 10 year compounding rate of return of 10.4% gross. If the national convention centre is built elsewhere, then the compounding gross yield goes down to 8.5%. So what we have here is a 'heads the investor wins' and 'tails the investor wins not quite as much'.

These kind of returns rather blow any alternative property investment out of the water and remind me why I haven't been investing in the property sector up to now. I put a buy order in the market last week at $3.60, not really expecting it to be filled. Yesterday it was. True to form the share price has slipped even below this today as I write here. But I am prepared to look through any short term SP weakness. SKC will never be cheap. But with the quality of the underlying business, I think SKC is the best risk/return buy on the NZX today, at under $3.60.

SNOOPY

[Snoopy]

Sky City has been named one of Forsyth Barr's top five picks for 2013,
While SKC is very well placed for medium-term operational upside from improvements at its Auckland casino and the underlying economic conditions, the operating environment remains subdued. There were encouraging signs at the keyAuckland property over FY12 in particular for the Auckland gaming machines andthe International Business. SKC is a strong generator of free cash flow, has a sound balance sheet and has potential to leverage its large Auckland precinct further withthe NZ International Convention Centre project.

I can't let the day pass without passing a comment on the $300m plus new developments in Adelaide, especially as it wasn't even mentioned in the Forsyth Barr outlook.

This has traditionally been the 'bogey casino' for SKC. Many trade offs have been made:

1/ Higher table/pokie taxes have been agreed to.
2/ There has been a one off payment to the local authorities, I presume in relation to the retention and extension of SKCs monopoly licence in South Australia.
3/ And there is the huge expense of building the 6 star hotel and other site improvements.

Yet CEO Neil Morrison seems happy. So I guess the potential increase in gambling volume must outweigh what seems superficially to be a lot of bad stuff!

SNOOPY

[Baddarcy]

Story in the herald today about SKC telling contractors the Auckland convention centre is a done deal and planing to extend the gaming floor.

i was going to post a link, but the NZ Herald web site seems to have pooped itself at the moment.

site back now

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10859162

[Snoopy]

Perhaps worryingly, given how long these convention centre negotiations are going on, I believe the difference in share price today between 'Convention Centre Yay' and 'Convention Centre Nay' is about 80c per share.

Put another way, if the convention centre is approved, the SKC share price I think would break the $4 barrier. If turned down then I believe something like $3.20 would be closer to fair value.

Usually a share price drop from $3.80 to $3.20 on a quality share like SKC would attract my interest. In this case though I believe such a share price fall in the 'Convention Centre Nay' scenario would probably be justified. Such is the dependence of SKC on the ongoing development of that Auckland site.


SKC very strong trading up 10c to $3.95.

I see Sky City management are denying things are finalized with the government and the National Convention Centre. But it looks like 'Mr Market' has already made his bet on the outcome. My recent top up at $3.60 is now looking good!

SNOOPY

[Hoop]

Hey there, Ive held this pup for 10 years now and its pretty much paid for itself. To me it looks like SKC is onto the beginning of a major uptrend what do you guys think?

Drongo ...I had to double check your post date...yep its todays date....
SKC has been in a major uptrend for 4 years now.
Like many other shares on the NZX and including the NZX index it is showing signs of hitting long term resistances...not a problem if there are buyers willing to spend and create enough upward pressure to break that 4.00 resistance.....however the problem with mature bull markets such as the NZX50 index is that you have to continually ask yourself the same cautionary question...Are all the major players fully invested in the market place?....The shorter term TA indicators (not shown) reflect some strength is present, but is it enough??

The chart below is different from those I normally post..This is a weekly chart...
Sometimes when you stand too close to a share you get deafened by the everyday media noise and lose perception of what has been happening..Long term weekly KISS charts help to keep you focused.

http://i458.photobucket.com/albums/qq306/Hoop_1/SKCweek30012013_zps464cb5ab.png

[percy]

Hoop.
Thanks for your comments and chart.Always appriciated.

[sharer]

Thanks Hoop for your graphs and interesting comment. Always much appreciated.
And thanks Drongo for posting the link to a story about SKC (nothing yet in the Dom-Post), especially the Manila casino venture coming up (maybe); that was surprise news to me, in spite of reasonable efforts to keep informed. Nearly a billion $$ in expansion etc plans is something requiring a bit of study, & i'm already unhappy about a shonky jonky scheme to jack up business over an expensive dinner with the government, not my idea of decent governance or fair play at all.
Exulting money-changers have always signalled trouble.
The Philippines expansion idea seriously changes the SKC outlook for some of us.
After chatting with my trustee-designates who will quite possibly soon have to administer my various personal & charitable funds, & realising they don't like the gambling business at all, and would probably start by dumping SKC at whatever current price, my own strategy now has changed to looking for the best exit strategy & reinvestment. (Pity about the dividends, but there are alternatives always).

[macduffy]

The Manila "idea" seems to be just that, at this stage. Possibly SKC flying a kite to see how the market reacts - and maybe a reminder to the govt that the company has other options beside the convention centre, despite their contention that the latter would not be impacted?

[karen1]

Think you are right, macduffy, this is a later link to the one above, where CEO of SKC is downplaying earlier report:

http://www.stuff.co.nz/business/industries/8250975/SkyCity-dampens-Asian-expectations

[Dej]

Never let your personal/political emotions get in the way of a financial transaction, it never helps. I love cats, but if Gareth Morgan was skinning them and making a killing from it I would still invest in him!

What is he was skinning moose? :p

[percy]

.
After chatting with my trustee-designates who will quite possibly soon have to administer my various personal & charitable funds, & realising they don't like the gambling business at all, and would probably start by dumping SKC at whatever current price, my own strategy now has changed to looking for the best exit strategy & reinvestment. (Pity about the dividends, but there are alternatives always).

Hate to hear we may soon lose you,as I have always enjoyed your posts.
Should your trustee-designate not be happy with gambling stocks, I feel you should work with him/her and adjust your portfolio now, so it continues in "the spirit" of your wishes,and saves your trustee the worry of going against your wishes when they have to run your estate's affairs.
In the meantime I think you should share your wisdom with us more often.

[sharer]

Thanks for kind thought Percy

[Snoopy]

The Manila "idea" seems to be just that, at this stage. Possibly SKC flying a kite to see how the market reacts - and maybe a reminder to the govt that the company has other options beside the convention centre, despite their contention that the latter would not be impacted?


I must admit to being quite appreciative of Nigel Morrison's somewhat measured approach to the management of SKC. It is in stark contrast to the expand on all fronts approach of predecessor Evan Davies. If market sentiment went against Evan, he would be wheeled out my his media stooges to shout 'takeover target' expecting the market to follow him. I don't wish to degenerate Davies early work at Sky City. But I do think that by the time Evan relinquished his position as CEO he was past his use by date there.

Unlike Davies, Morrison does have a work history in Casinos in Asia, if not the Philippines in particular. So I see nothing wrong with him possibly recycling some of this experience for the benefit of Sky City shareholders.

In recent months I increased my exposure to SKC. This was because I looked around at various other Australasian Casino operators and came to the conclusion that I already held shares in the best operator of all - SKC. In the back of my mind was the view that the Adelaide expansion and Auckland National Convention Centre done together might require a small cash issue, despite management denials. If SKC went into the Philippines as well, then that cash issue would be all but certain.

However, as I said before, the measured approach of Morrison means that these expansions will not go ahead unless a satisfactory return for shareholders will ultimately be obtained. I am just fine with that. And if a cash issue is required in the short to medium term I say 'bring in on'.

SNOOPY

[percy]

I must admit to being quite appreciative of Nigel Morrison's somewhat measured approach to the management of SKC. It is in stark contrast to the expand on all fronts approach of predecessor Evan Davies. If market sentiment went against Evan, he would be wheeled out my his media stooges to shout 'takeover target' expecting the market to follow him. I don't wish to degenerate Davies early work at Sky City. But I do think that by the time Evan relinquished his position as CEO he was past his use by date there.

Unlike Davies, Morrison does have a work history in Casinos in Asia, if not the Philippines in particular. So I see nothing wrong with him possibly recycling some of this experience for the benefit of Sky City shareholders.

In recent months I increased my exposure to SKC. This was because I looked around at various other Australasian Casino operators and came to the conclusion that I already held shares in the best operator of all - SKC. In the back of my mind was the view that the Adelaide expansion and Auckland National Convention Centre done together might require a small cash issue, despite management denials. If SKC went into the Philippines as well, then that cash issue would be all but certain.

However, as I said before, the measured approach of Morrison means that these expansions will not go ahead unless a satisfactory return for shareholders will ultimately be obtained. I am just fine with that. And if a cash issue is required in the short to medium term I say 'bring in on'.

SNOOPY

I must agree with you,Morrison and team our making the most of opportunities in Darwin,Adelaide and Auckland.Careful measured approach.Have not added to my holding,happy to hold and enjoy the ride.

[macduffy]

From yesterday's "Business Spectator"



Nomura has moved to downgrade the gaming and leisure sector as it believes the strong multiple expansion over the past six months now adequately reflects the robust fundamentals of the sector. They downgraded it to neutral from overweight.



Looking at the year ahead from a macro perspective, Nomura anticipates companies with strong free cash flows and sustainable dividend yields will continue to find solid support as the rotation from safety assets to high yielding equities continues. Tatts Group, Tabcorp and SKYCITY fit into the above classification.

“From a bottom-up perspective our forecast decline in disposable income for Australian consumers, expectations of rising unemployment and above trend operational expenditure growth (in electricity, among others) are likely to be detrimental to casinos’ top-line performance (relative to the more defensive cash flows of lotteries and wagering), and sector margins generally,” Nomura said.

click the image to enlarge

The broker’s top pick in the sector is Tatts Group, which it upgrades to buy with a target price of $3.65 based on the above rotation theme. Nomura likes the double-digit earnings growth, yield growth and cost-out potential and believes the stock will continue to attract a premium multiple given its surety of cash flows and expected strong first half lotteries and wagering results.

Elsewhere, Nomura likes SKYCITY Entertainment Group and reiterates its buy recommendation and $3.75 price target. The broker believes the stock represents compelling value at current levels and sees an attractive growth profile on the back of the Adelaide Casino redevelopment.

On the downside, it retains its reduce recommendation for Aristocrat Leisure as it believes the stock is trading well above peer multiples with an inferior growth profile.

They also downgraded Crown to neutral from buy on the basis that the bulk of the good news is already priced in following the amazing 40.1 per cent gain since June 2012.

[Baddarcy]

Wow, seems to have quickly busted that $4 ceiling. A lot faster rise than I would have thought!

have a look at the nz herald business section today :-)

[Snoopy]

Don't have the time to do fundamentals on this, might have to wait for some one else. Sorry!


By my modelling 'core' earnings at SKC for FY2012 were around $125m. With 576m shares on issue this equates to 21.7cps. At $4 that is a PE ratio of 18.4. I regard SKC as a high quality business. It is in fact a legislated monopoly (in casino licence terms) in the all of the markets in which it operates. So while a PE of 18.4 is high and already factors in a useful amount of future growth, I wouldn't say that at $4 SKC is overvalued.

However, neither would I say SKC is undervalued at $4.

The proposed Queenstown expansion is an interesting initiative. However, I am not sure if it will be that much of a money spinner. Up until now the Queenstown casino has been so small in the overall scheme of things I have thought of it more as a 3D biological advertising board for the Auckland operation. IIRC it has hardly made (or in bad years lost) any money of significance. Personally I don't think rich Asians will fly into Queenstown specifically to gamble, given that they would have most likely come into NZ via Auckland, and SKC Auckland. I can see the high rollers stopping off in Auckland, then flying to Queenstown for a few days. But I feel it is just as likely that any new high roller gambling that happens in Queenstown will be money that would otherwise have been spent at the Auckland casino. So the incremental value of Queenstown based on the whole of company picture may not be that high.

An agreement has been reached reached with the South Australian government, that effectively puts the Adelaide casino on the same footing as casinos in NSW and Victoria. But before any benefit flows there there is much capital investment to be made.

As for dipping a toe into the market in the Phillipines, well that sounds like another long term project.

I don't see FY2013 as a big growth year for SKC. So despite some very attractive long term projects in the pipeline, I don't believe that SKC merits a share price higher than $4 for now, particularly with the talks on the NZ convention centre proving so protracted. There is some execution risk to the business development plan, even though my gut feel is that SKC will do well over the next few years.

Of course pure traders pay no attention to any of this and are quite comfortable chasing the share price up because everyone else is doing it. I would say the chances of having a successful short term trade here (with SKC above $4) are no better than 50/50.

SNOOPY

[percy]

I would think Queenstown could become the Monte Carlo of the South Pacific.High rollers from around the world would be attracted if the facilities were up to world standard.

[Snoopy]

I would think Queenstown could become the Monte Carlo of the South Pacific.High rollers from around the world would be attracted if the facilities were up to world standard.

Monte Carlo is right in the heart of Europe. Queenstown is readily accessible only by Cook Island domiciled fraudsters, amongst the international elite.

I can't see an Asian gambler who only has a week's break and spends two days of that traveling to and from New Zealand, blowing another two days traveling between Auckland to Queenstown. Nigel Morrison's plan of buying a superyacht and entertaining these people on the Auckland harbour is to my mind the better plan. Although maybe not buying a yacht and letting these high roller tourists seek out their own entertainment would be better still from a SKC shareholder perspective!

SNOOPY

[percy]

Monte Carlo is right in the heart of Europe. Queenstown is readily accessible only by Cook Island domiciled fraudsters, amongst the international elite.

I can't see an Asian gambler who only has a week's break and spends two days of that traveling to and from New Zealand, blowing another two days traveling between Auckland to Queenstown. Nigel Morrison's plan of buying a superyacht and entertaining these people on the Auckland harbour is to my mind the better plan. Although maybe not buying a yacht and letting these high roller tourists seek out their own entertainment would be better still from a SKC shareholder perspective!

SNOOPY

Queenstown is a major attraction for the world's rich and famous.Asians already love it.Put the facilities there and even more will come.

[janner]

Queenstown is a major attraction for the world's rich and famous.Asians already love it.Put the facilities there and even more will come.

Rich and famous " Gamblers " ???.. I think not Perc.. Not their area of business really..

Auckland .. Maybe.. Fly in.. fly out.. Time is money..