SKC - Sky City

[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