MCK - Millennium & Copthorne Hotels.

[LaserEyeKiwi]

Whats more I would also note that MCKs current 66% holding of CDL is worth ~$190 million (and they are now increasing their percentage holding in CDL by taking shares in lieu of cash dividend this year). That means MCKs NZ hotel operations, and their Sydney residential portfolio, is currently only being valued at approximately $160 million.

(Note: CDL value is based on CDL shareprice, not the underlying asset value of CDL which accounts for its major asset base - development land - on a cost basis rather than on market value).

[Snoopy]

Valuing companies on an ex-cash multiple is common practice for companies with large amounts of cash sitting on the balance sheet which are far in excess of working capital needs. In the case of MCK this is indeed the case, with hotel refurbishments having already been carried out on large properties (and the cash balance has increased during that time).

The only time I have seen "ex.-cash PE" mentioned before was on the A2 Milk thread when some shareholders were desperately trying to justify an overvalued share price. The cash was not surplus there, and it is not surplus here. It is the board that decides whether cash is surplus or not. There is no sign of either the A2 board or MCK board doing so.

You have said yourself that:

"The 2nd Queenstown resort is now currently being refurbished after the first one was just finished, with the Rotorua resort the next to likely be done."

So you are aware that in reality there is more work to be done. How do you know the cash on hand is 'far in excess of working capital needs'? There are 'refurbishments' and 'refurbishments'. Do you sit around the MCK board table? They may be eyeing an acquisition for all you know. I don't claim to know any more or as much about the hotel business as you do LaserEyeKiwi. But I do know that returns on capital invested are historically not great, and Covid-19 has not improved those returns. So there is a need to keep financials conservative.

Let's be clear, I am not arguing that MCK is a dud investment. I can see value here. But there is no need to make up financial statistics to measure it.

SNOOPY

[LaserEyeKiwi]

The only time I have seen "ex.-cash PE" mentioned before was on the A2 Milk thread when some shareholders were desperately trying to justify an overvalued share price. The cash was not surplus there, and it is not surplus here. It is the board that decides whether cash is surplus or not. There is no sign of either the A2 board or MCK board doing so.

You have said yourself that:

"The 2nd Queenstown resort is now currently being refurbished after the first one was just finished, with the Rotorua resort the next to likely be done."

So you are aware that in reality there is more work to be done. How do you know the cash on hand is 'far in excess of working capital needs'? There are 'refurbishments' and 'refurbishments'. Do you sit around the MCK board table? They may be eyeing an acquisition for all you know. I don't claim to know any more or as much about the hotel business as you do LaserEyeKiwi. But I do know that returns on capital invested are historically not great, and Covid-19 has not improved those returns. So there is a need to keep financials conservative.

Let's be clear, I am not arguing that MCK is a dud investment. I can see value here. But there is no need to make up financial statistics to measure it.

SNOOPY

I usually invest in US companies. Ex-cash valuation metric is fairly common in US market for fundamental investors looking for undervalued names to see there true valuation multiple. In particular Apple was for a long time valued on an ex-cash basis (levering up with options when ex-cash PE fell below 10 was the best investment I ever made)

[Snoopy]

I usually invest in US companies. Ex-cash valuation metric is fairly common in US market for fundamental investors looking for undervalued names to see there true valuation multiple. In particular Apple was for a long time valued on an ex-cash basis (levering up with options when ex-cash PE fell below 10 was the best investment I ever made)

Fair enough. The rules for dividends in the US are different to here. IIRC company profits are taxed, then shareholders are taxed again when dividends are paid. This 'double taxing of profits' is a good reason for US companies to retain their earnings rather than pay them out. So you may indeed find that some US corporations carry 'surplus cash'. That situation does not apply in NZ though. The imputation credit system here means that it is 'cash neutral' for shareholders if profits are retained or paid out, as a rule. Thus there is no impediment there for directors of NZ listed companies to pay out their surplus company funds. In fact some might argue it is their fiduciary duty to do so! I would carry the argument further. If you think an NZ company has 'surplus cash', what you are really saying is that you know better than the company directors.

SNOOPY

[LaserEyeKiwi]

Fair enough. The rules for dividends in the US are different to here. IIRC company profits are taxed, then shareholders are taxed again when dividends are paid. This 'double taxing of profits' is a good reason for US companies to retain their earnings rather than pay them out. So you may indeed find that some US corporations carry 'surplus cash'. That situation does not apply in NZ though. The imputation credit system here means that it is 'cash neutral' for shareholders if profits are retained or paid out, as a rule. Thus there is no impediment there for directors of NZ listed companies to pay out their surplus company funds. In fact some might argue it is their fiduciary duty to do so! I would carry the argument further. If you think an NZ company has 'surplus cash', what you are really saying is that you know better than the company directors.

SNOOPY

you are correct about that awful double taxation on dividends situation in the US - which is why Share buybacks are so popular for capital return.

[LaserEyeKiwi]

President Biden just announced that USA will have enough vaccinations to cover every American adult by end of May, 2 months earlier than previously planned.

This bodes well for MCK as inbound tourists from USA & Australia now look more likely by year end - America vaccinating quicker than expected mean a lot more supply for other nations like NZ & Australia sooner than expected.

[LaserEyeKiwi]

some heavy selling today - possible good entry here

[LaserEyeKiwi]

Multiple media reports this morning that NZ will introduce Australian travel bubble in mid/late April. Potentially announced as soon as Monday afternoon (following cabinet meeting).

This of course would be very good news for MCK, with Australia being by far the largest source of international customers.

https://www.rnz.co.nz/news/national/...y-end-of-april

[LaserEyeKiwi]

April 6th announcement will set the start date of the Australian quarantine free bubble. Sounds like it will be in place by some point in late April / Early May.

Expect money to flood in too tourism related stocks like MCK once the date is announced as it becomes clear 2021 will be a much better year than expected.

[LaserEyeKiwi]

Todays the day - place your bets ladies & gentlemen!

The impact of reopening to our largest tourist market are going to be significant, especially with something close to one third of Auckland hotel rooms being unavailable as they are part of the continuing MIQ pool. That means the two thirds of rooms that aren't in the MIQ pool will see an outsized demand pop from the Australian travel bubble.