SKC - Sky City

[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