SKC - Sky City

[Biscuit]

..... What part of the moat do you feel is now in question? The Auckland casino licence pushed out to 2048 with a further 15 year right or renewal, makes the moat more secure than it has been in a long time, from my perspective.

SNOOPY

Thanks for the detailed reply. Perhaps the experience with the Darwin Casino demonstrates that even casino licenses can be devalued to some extent by changes in Government policy.

I made the figure of 6.5% up. This is a return I personally would be happy with, considering the underlying nature of the Sky City business....
SNOOPY

Fair enough. It could be argued, though, that 6.5% is just one person's opinion of the appropriate return and a more "accurate" number would be obtained from the average historical return.

[Snoopy]

Thanks for the detailed reply. Perhaps the experience with the Darwin Casino demonstrates that even casino licenses can be devalued to some extent by changes in Government policy.

Fair point. The Darwin Casino licence was untouched. Yet by near doubling the number of pokies outside of the 'exclusive licence' Darwin Casino, the effective value of that exclusive casino licence was reduced. I would be fascinated to know the politics behind that move. I don't think an equivalent 'explosion of pub pokies' would be politically acceptable in NZ. So I still feel on fairly safe ground. You have to remember too that Darwin is only a very small part of the whole Sky City operation.

Fair enough. It could be argued, though, that 6.5% is just one person's opinion of the appropriate return and a more "accurate" number would be obtained from the average historical return.

I think the 'acceptable return' is related to current interest rates. But there is no point, IMO, in saying you would accept an even lower return when it seems inevitable that at some stage interest rates will go up again. You could say I have built in a buffer assuming some interest rate rise is coming.

Not so sure about picking an 'average historical return', if by 'history' you mean some time over the last twenty years. I think that even after the next series of interest rate rises, those bank term deposit rates are likely to struggle to get much over 5%, even at the top of the next boom. My feeling is that the next twenty years will prove to be a 'new normal'.

SNOOPY

[Snoopy]

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.

SKC went ex-dividend today (10c) and is now trading at $3.84. With my fair valuation of $3.68, I am watching.

SNOOPY

[Balance]

SKC went ex-dividend today (10c) and is now trading at $3.84. With my fair valuation of $3.68, I am watching.

SNOOPY

https://www.nzx.com/files/attachments/263571.pdf

Reason why I bought in and am happy to add to my holding.

Been right to follow Rob into the companies he is chairman and/or director in - THL, PCT, SUM - and he has always shown his confidence by buying shares in the companies.

[percy]

https://www.nzx.com/files/attachments/263571.pdf

Reason why I bought in and am happy to add to my holding.

Been right to follow Rob into the companies he is chairman and/or director in - THL, PCT, SUM - and he has always shown his confidence by buying shares in the companies.

Well he certainly did not time his purchase using charts.

[Biscuit]

SKC went ex-dividend today (10c) and is now trading at $3.84. With my fair valuation of $3.68, I am watching.

SNOOPY

Now $3.69 ..... Seems Mr Market agrees with your valuation (for now)

[limmy]

Starting to rise as the AGM approaches, on October 20th ?

[Snoopy]

Rob Campbell joining the Board as Chairman is actually one good reason to buy - his track record at THL, Precinct and Summerset is absolutely superb.

I sent in my shareholder voting form the other day and have decided to vote against the appointment of Rob Campbell as Chairman elect. There is nothing personal in this 'no' vote. As Balance has pointed out, Campbell has a directorial record of success. What tipped the balance was all the excuses made in the voting form explanatory information about Campbell's existing workload, and the hints about how he might lighten his workload my moving out of other directorships in due course. Excuse me. Given the issues that the company faces, SKC will require the full attention of the new Chairman of the Board right now. If Campbell was really serious about this Chairman's job, he should have resigned his superfluous directorships already. In some circumstances these divided loyalties, for a while, might not matter. But SKC has also recently appointed a new externally recruited CEO, parachuted in from overseas. I think having 'company newbies' in what are arguably the two most important jobs in the company within such a short space of time is not on.

Mention is made about director Brent Harman being valued for his continuity of knowledge. Why wasn't Harman made Chairman, even if it was only for an interim period while Rob Campbell got his feet under the table? I think that all this reflects poorly on retiring Chairman Chris Moller, who should have been more on the ball with his succession planning.

I need not remind shareholders that IMO Moller should have been more 'on the ball' with the payment of company tax as well. Shareholders were left to pay income tax on real income, because the company was late in paying what in previous years were legitimate tax bills that should have enabled shareholders to book imputation credits. Paradoxically this year, SKC appears to have paid way too much tax in advance. IOW, the tax payments look all over the place. Is disorganization endemic to the executive culture of SKC?

SNOOPY

[Snoopy]

Now $3.69 ..... Seems Mr Market agrees with your valuation (for now)

Despite SKC not closing at 'not quite' my $3.68 fair valuation, I added to my holding with a small parcel bought at $3.70 last week. This raises my average buy price to $3.08, which isn't fantastic given how long I have owned the shares. Yet SKC have always been good dividend payers, and they now have a plan and funding in place to go forwards with the construction projects in both Auckland and Adelaide.

The Sky City share price has gone nowhere over the last couple of years. Yet the small delay in the timing of the Auckland Convention Centre, counter-weighted by the cost control on the project being so favourable to SKC shareholders under the soon to be knighted Sir Mark Adamson (what a public service his tenure at Fletchers has proven to be) will see this world class expanded casino facility ready for the upcoming America's Cup, and countless conferences before that. Yet, my purchase last week was made purely on the consideration of dividend yield. I think that at $3.70, SKC is worth buying even if there is no earnings growth at all going forwards. IOW, 'buy the yield' and any growth you do get is free.

Part of the reason for the struggling share price has been the profitability problems in the Australian casinos of Darwin and Adelaide, and the higher construction costs for the Adelaide extension. Yet overall, the number of shares held by named Australian institutional shareholders has increased over the past year.

	Percentage Shareholding 2016	Percentage Shareholding 2017
JB Morgan Nominees Australia	7.99%	9.47%
HSBC Custody Nominees (Australia) Limited	6.02%	15.40%
RBC Investor Services Australia Nominees Pty Limited	3.23%	< 0.65%

It looks like 'National Nominees' in New Zealand have been the big sellers, with ACC down a bit.

	Percentage Shareholding 2016	Percentage Shareholding 2017
National Nominees New Zealand Limited - NZCSD	4.94%	< 0.65%
National Nominees Limited	4.77%	3.56%
Accident Compensation Corporation – NZCSD	2.84%	2.66%

I think the Aussies have got this one right. They realise that what goes on in Australia is really a side issue and it is the Auckland Casino site that will drive earnings going forwards. Hence no real reason to sell and every reason to buy.

SNOOPY

discl: hold SKC

[macduffy]

Is disorganization endemic to the executive culture of SKC?

Possibly, although whether a chairman should check to ensure that tax is paid on time is an interesting question.

FWIW, Snoopy, I'm another who didn't let this get in the way of adding a few more SKC recently!