2/ Buffett Test 2 FY2017: Increasing ‘eps’ Trend (one setback allowed)
Quote:
Originally Posted by
Snoopy
Year |
Normalised Net Profit {A} |
No. Shares EOFY {B} |
eps {A}/{B} |
FY2012 |
$138.870m+0.72($4.274m-$1.756m-$0.582m)= $140.264m |
576.958m |
24.3c |
FY2013 |
$127.382m+0.72($3.235m-$0.947m+$0.249m)= $129.209m |
576.958m |
22.4c |
FY2014 |
$98.537m+0.72($9.170m-$0.995m-$2.125m)-0.72($0.934m)= $102.221m |
582.088m |
17.6c |
FY2015 |
$128.744m+0.72($4.316m-$1.348m-$1.077m)= $130.106m |
587.473m |
22.1c |
FY2016 |
$145.672m+0.72($1.553m-$0.944m-$0.709m) +0.72($2.7m+7.6m)= $152.319m |
656.987m |
23.2c |
FY2017 |
$44.862m+0.72($0m-$0.762m-$0.534m) +($99.486m)= $143.415m |
667.376m |
21.5c |
Notes:
1/ Each year’s profit is adjusted for ‘restructuring costs’, ‘property plant and equipment sales’ and ‘exchange rate contract losses/gains’.
2/ FY2014 result adjusted for sale of the Christchurch Casino shareholding.
3/ FY2016 result is adjusted for $2.7m of planning expenses from the abandoned Hamilton hotel project and $7.6, representing the book value of a now demolished car park on the Auckland Convention Centre site.
4/ These are all 'actual profits'. I do not subscribe to using the 'normalised profits' that management seem to favour.
We see a steady drop in 'eps' over three year before two years of recovery.
Conclusion: Fail test
Year |
Normalised Net Profit {A} |
No. Shares EOFY {B} |
eps {A}/{B} |
FY2013 |
$127.382m+0.72($3.235m-$0.947m+$0.249m)= $129.209m |
576.958m |
22.4c |
FY2014 |
$98.537m+0.72($9.170m-$0.995m-$2.125m)-0.72($0.934m)= $102.221m |
582.088m |
17.6c |
FY2015 |
$128.744m+0.72($4.316m-$1.348m-$1.077m)= $130.106m |
587.473m |
22.1c |
FY2016 |
$145.672m+0.72($1.553m-$0.944m-$0.709m) +0.72($2.7m+7.6m)= $152.319m |
656.987m |
23.2c |
FY2017 |
$44.862m+0.72($0m-$0.762m-$0.534m) +($99.486m)= $143.415m |
667.376m |
21.5c |
Notes:
1/ Each year’s profit is adjusted for ‘restructuring costs’, ‘property plant and equipment sales’ and ‘exchange rate contract losses/gains’.
2/ FY2014 result adjusted for sale of the Christchurch Casino shareholding.
3/ FY2016 result is adjusted for $2.7m of planning expenses from the abandoned Hamilton hotel project and $7.6, representing the book value of a now demolished car park on the Auckland Convention Centre site.
4/ FY2017 result is adjusted for the write off of Darwin goodwill ($99.486m).
5/ These are all 'actual profits'. I do not subscribe to using the 'normalised profits' that management seem to favour.
There is no clear pattern of rising earnings per share here..
Conclusion: Fail test
SNOOPY
3/ Buffett Test 3 FY2017: ROE > 15% over 5 years (one setback allowed)
Quote:
Originally Posted by
Snoopy
Year |
Normalised Net Profit {A} |
S/h Equity EOFY {B} |
FY2012 |
$140.264m |
$809.1m |
17.3% |
FY2013 |
$129.209m |
$812.9m |
15.9% |
FY2014 |
$102.221m |
$773.8m |
13.2% |
FY2015 |
$130.106m |
$816.9m |
15.9% |
FY2016 |
$152.319m |
$1,113.0m |
13.7% |
The FY2016 result is a little unfair. The end of the financial year is 30th June. So the $263m of new capital raised from shareholders in June 2016 was only on the books for a month. If I remove this new shareholder equity from my calculation I get an ROE for FY2016 of:
$152.319m/ ($1,113m - $263m) = 17.9%
On this basis I am prepared to overlook the failure for FY2016.
Conclusion: Pass Test
Year |
Normalised Net Profit {A} |
S/h Equity EOFY {B} |
FY2013 |
$129.209m |
$812.9m |
15.9% |
FY2014 |
$102.221m |
$773.8m |
13.2% |
FY2015 |
$130.106m |
$816.9m |
15.9% |
FY2016 |
$152.319m |
$1,113.0m |
13.7% |
FY2017 |
$143.415m |
$1,070.9m |
13.4% |
Despite the doubtful FY2016 result, this year saw a marked deterioration in high roller lending and NPAT losses in Darwin. The end of year write down of Darwin assets was not enough to offset the lower profits so ROE deteriorated.
Conclusion: Fail Test
SNOOPY
4/ Buffett Test 4 FY2017: Ability to Raise Margins (3 year trend sufficient)
Quote:
Originally Posted by
Snoopy
Year |
Normalised Net Profit {A} |
Revenues {B} |
FY2012 |
$140.264m |
$960.2m |
14.6% |
FY2013 |
$129.209m |
$970.7m |
13.3% |
FY2014 |
$102.221m |
$928.2m |
11.0% |
FY2015 |
$130.106m |
$1,037.0m |
12.5% |
FY2016 |
$152.319m |
$1,131.5m |
13.5% |
Despite the net profit margin being less than five years ago, the turnaround trend over the last three years shows that margin improvement is still possible.
Conclusion: Pass Test
Year |
Normalised Net Profit {A} |
Revenues {B} |
FY2013 |
$129.209m |
$970.7m |
13.3% |
FY2014 |
$102.221m |
$928.2m |
11.0% |
FY2015 |
$130.106m |
$1,037.0m |
12.5% |
FY2016 |
$152.319m |
$1,131.5m |
13.5% |
FY2017 |
$143.415m |
$1,052.1m |
13.6% |
FY2015, FY2016 and FY2017 shows a small but discernible that margin improvement.
Conclusion: Pass Test
SNOOPY
Conclusion: Buffett Growth Model Suitability FY2017 Perspective.
Quote:
Originally Posted by
Snoopy
SKC is not a suitable company to apply the Buffett growth model to right now, because the the 'earnings per share' increasing trend that is required is not there. This doesn't mean that SKC is necessarily a poor investment though. It just means that we need a different method to analyse the likely investment potential from here. And that means rolling out the 'Capitalised Dividend Model' method (!). Stay tuned.
One year on and with the FY2017 results declared, it is time to resummarize our test results:
BT1/ Strong position (top three) in chosen market (my post 506): Pass Test
BT2/ Increasing 'eps' trend (my post 564): Fail Test
BT3/ ROE > 15% consistently (my post 565): Fail Test
BT4/ Ability to Increase Net profit margin (my post 566): Pass Test
SKC is in the midst of two large development programs in Auckland and Adelaide. The capitalised interest payments will add to the final capitalised costs of these projects. This on top of the expected capital spend will make it hard for SKC to earn a good return on equity into the future. The setback in earnings at Darwin is permanent. The real bright spark in the portfolio is Hamilton which on some metrics now outperforms the flagship Auckland property. And all this with, I would imagine, mainly on the proposition of entertaining local customers. The Auckland property nevertheless performed well. Who knows how well it will perform when the Convention Centre is finished? But I do believe that some of the benefits of the Convention Centre (a licence for more gaming machines and gaming tables) have already been 'booked', before the full 'cost stream' of running that International Convention Centre has not yet been paid by shareholders.
This Buffett type analysis relies on actual 'runs on the board' from the recent past. A pass of all four tests is required. On this basis neither the earnings per share trends, nor the returns on shareholder funds have a 'premium investment look'.
Conclusion: SKC is not a suitable company to apply the Buffett growth model. An alternative method of valuation will be sought.
SNOOPY
Capitalised Dividend valuation: FY2018 NZ Perspective
Quote:
Originally Posted by
Snoopy
The following is a record of all of the dividend payments over the last five years from a New Zealand perspective. 'From a New Zealand perspective' means that the investor concerned can take advantage of New Zealand imputation credits.
Payment Date |
Dividend Imputation Percentage |
Declared Dividend |
Gross Dividend (I/C adjusted) |
17-03-2017 |
0% |
10.0cps |
10.0cps |
16-09-2016 |
50% |
10.5cps |
12.54cps |
|
|
|
|
|
|
|
|
16-03-2016 |
0% |
10.5cps |
10.5cps |
02-10-2015 |
33% |
10.0cps |
11.0cps |
|
|
|
|
|
|
|
|
02-04-2015 |
0% |
10.0cps |
10.0cps |
03-10-2014 |
100% |
10.0cps |
13.89cps |
|
|
|
|
|
|
|
|
04-04-2014 |
0% |
10.0cps |
10.0cps |
04-10-2013 |
100% |
10.0cps |
13.89ps |
|
|
|
|
|
|
|
|
05-04-2013 |
50% |
10.0cps |
11.94cps |
05-10-2012 |
60% |
8.0cps |
9.87cps |
|
|
|
|
|
|
|
|
Five Year Average |
|
19.8cps |
22.73cps |
Assuming a required rate of return of 6.5%, this translates to a share price of:
$0.2273 / 0.065 = $3.50
This is a 'business cycle average' valuation. My rule of thumb is that under different market conditions, the share price is liable to fluctuate up to 20% above and down to 20% below 'fair value'. This implies an 'all the ducks lining up' top of the market valuation of $4.20 cum dividend. At a $4.25 close on the market on Friday, but with a dividend payment of some 10c due within a couple of months, SKC is looking very fully priced using this valuation technique. Perhaps reducing one's holding on any market strength from here is the way to go?
The following is a record of all of the dividend payments over the last five years from a New Zealand perspective. 'From a New Zealand perspective' means that the investor concerned can take advantage of New Zealand imputation credits.
Payment Date |
Dividend Imputation Percentage |
Declared Dividend |
Gross Dividend (I/C adjusted) |
1x-03-2018 (*) |
0% |
10.0cps |
13.89cps |
15-09-2017 |
50% |
10.0cps |
13.89cps |
|
|
|
|
|
|
|
|
17-03-2017 |
0% |
10.0cps |
10.0cps |
16-09-2016 |
50% |
10.5cps |
12.54cps |
|
|
|
|
|
|
|
|
16-03-2016 |
0% |
10.5cps |
10.5cps |
02-10-2015 |
33% |
10.0cps |
11.0cps |
|
|
|
|
|
|
|
|
02-04-2015 |
0% |
10.0cps |
10.0cps |
03-10-2014 |
100% |
10.0cps |
13.89cps |
|
|
|
|
|
|
|
|
04-04-2014 |
0% |
10.0cps |
10.0cps |
04-10-2013 |
100% |
10.0cps |
13.89ps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five Year Average |
|
20.2cps |
23.92cps |
(*) This dividend is a forecast. and in line with the company stated dividend policy. The very strong imputation credit balance (note 13, AR2017) indicates the final dividend ought to be fully imputed this year.
Assuming a required rate of return of 6.5%, this translates to a share price of:
$0.2392 / 0.065 = $3.68
This is a 'business cycle average' valuation. My rule of thumb is that under different market conditions, the share price is liable to fluctuate up to 20% above and down to 20% below 'fair value'. This implies an 'all the ducks lining up' top of the market valuation of $4.42 cum dividend. At a $3.97 close on the market on Friday, but with a dividend payment of some 10c due within a couple of days, SKC is trading at a modest 5% premium to 'fair value' using this valuation technique. I already hold this share, and may look to buy more if the price slips below that $3.70 level.
SNOOPY