MCK - Millennium & Copthorne Hotels.

[beetills]

NTA of 408 sp of 264.

[greater fool]

Original content removed. The ghost of STMOD does not permit deletion.

[BlackPeter]

Just wondering whether the disaster of the Auckland Convention Centre fire could have as well some sort of silver lining for MCK and other competitors in the industry?

Early days, but it is probably fair to say that hotel space in Auckland will stay for a bit longer at a premium ...

[percy]

Until The Convention is finished there will not be a lot extra demand .Still plenty of competition.
MCK's share price does not look too flash being under both its 100 day and 200 day moving averages.
Most probably reacting to the tourism slow down.

[BlackPeter]

...

MCK's share price does not look too flash being under both its 100 day and 200 day moving averages.
Most probably reacting to the tourism slow down.

The old saying goes - if you sit in a glass house you should not throw with stones.

Looking at MCK's performance - I guess everything is relative. Sure, over the last 2 years there have been better performers, but this does not mean it needs to stay that way with property prices on the up again (MCK owns lots of properties and is as well majority shareholder of CDI - a property developer with a large land bank in desirable positions and whose shares are currently on the rise again.).

If you compare them with the highly praised TRA (yellow line below), then you will notice that MCK (blue line) looks really flash despite some correlation between the two quite different stocks;

Attachment 10823

Main difference however: MCK is basically a property company doing as well hospitality with a NTA of above $4 - high embedded value. I never would sell such a stock (unless I have to - takeover through the majority holder is currently a possibility). Buffet would like it, but in this case the Singaporean Kwek family is the majority holder (through various funds and majority holdings of companies). They learned one or two things making their billions.

TRA is basically a finance company with attached used car business and a long history of destroying shareholder funds. It has a quite low NTA (85 cents according to Reuters), even compared to the now quite low SP and some directors who probably put more time into trying to flog the company off than trying to grow it.

I prefer to buy good companies cheap (under the MA200), but each to their own.

[percy]

Take care.
Last announcement.Annual report.
Aucland Hotels.A lot of competition.Room tax and trouble getting staff, meant a poor outlook.
CDL property.Again a muted outlook.

Disc.I sold because of the poor outlook,and extremely low dividend yield.
Like you I added to my HGH holding.
.

Above posted on 23/04/2019 when I sold out at $2.95.
I prefer not only TRA for growth and dividends,but the following too;ALF,GNE,HGH,MEL,NPH,PGW,and SKL.
Currently I do not hold any shares [in NZ] in either the tourism or retirement sectors.

[jg8512]

I've looked at MCK a few times, one thing that always bothers me is the low return on equity (ROE). (I'm a buy and hold investor). ROE is low, average ~8.5% last 2 years.
eg, $62.0m NPAT in 2018 on $723.9m
$55.1m NPAT in 2017 on 663.7m of equity (including minorities in profit and total equity)

that's pretty unattractive - and implies the profits they are reinvesting aren't producing much incremental gain. But that is not that surprising ... as there is always a need to reinvest in hotel stock to keep it up to standard (and up with the joneses).

And looking at the profits versus capital investment for each of MCK's three segments (Annual Report, note one) you quickly sees that on current performance - the gem of the three segments is residential land development (aka CDI - which I hold) which made half the group profit on one quarter of the investment - but that hotels and residential property development are underperforming. (Worth acknowledging that MCK Hotels does revalue hotel assets to market - whereas CDI does not). CDI is battling some headwinds in 2019 ... which might be abating ... but all those new hotel rooms currently being built (plus or minus a few in central Akld) will presumably place pressure on occupancy and room rates in existing hotels for some time to come?

Based on this low ROE, I'm not yet convinced MCK is the sort of share an investor would want to put his/her money in? Or that this is about to improve much.
GLAH

[BlackPeter]

You are correct - ROE looks not very flash. Question is however whether ROE is a sensible measure to assess this stock.

According to the latest HY report do they have $731m in equity ... which would however cost you (at the current SP) only $273m to buy (which is their marketcap). What you would need to use to calculate your return is basically return on marketcap, and this looks significantly better.

MCK is basically an instrument for the Kwek family to (legally) hide money, and minority shareholders can participate in this schema. Obviously - there is a drawback. The hidden money can only be released if the Kwek family so desires, which may or may not be a long time to go.

But yes, you are right - CDI looks more straight forward as value investment than MCK (less hidden value). I hold both, but more CDI.

[Scrunch]

I've looked at MCK a few times, one thing that always bothers me is the low return on equity (ROE). (I'm a buy and hold investor). ROE is low, average ~8.5% last 2 years.
eg, $62.0m NPAT in 2018 on $723.9m
$55.1m NPAT in 2017 on 663.7m of equity (including minorities in profit and total equity)

that's pretty unattractive - and implies the profits they are reinvesting aren't producing much incremental gain. But that is not that surprising ... as there is always a need to reinvest in hotel stock to keep it up to standard (and up with the joneses).

And looking at the profits versus capital investment for each of MCK's three segments (Annual Report, note one) you quickly sees that on current performance - the gem of the three segments is residential land development (aka CDI - which I hold) which made half the group profit on one quarter of the investment - but that hotels and residential property development are underperforming. (Worth acknowledging that MCK Hotels does revalue hotel assets to market - whereas CDI does not). CDI is battling some headwinds in 2019 ... which might be abating ... but all those new hotel rooms currently being built (plus or minus a few in central Akld) will presumably place pressure on occupancy and room rates in existing hotels for some time to come?

Based on this low ROE, I'm not yet convinced MCK is the sort of share an investor would want to put his/her money in? Or that this is about to improve much.
GLAH

There is a degree of inconsistency in how various companies report the gain when properties increase in value.

Some companies report these gains as a revaluation of PP&E within total comprehensive income but not part of the net surplus. Other companies report it as part of the net surplus - the retirement companies are in this later group. If a property intensive company doesn't include revaluation gains in the net surplus, they will appear to have a low return on equity - this is contributing to your analysis of MCK.

If you look at the last two years as a collective P&L, MCK started 2016 with net assets of $552m. Total comprehensive income over 2017 was $122.5m. Over 2018 it was $73.3m. That's a 2yr return of 35.5% on equity or 16.4%/yr. This alternative calculation is almost double what you have noted above. If property values are going up, MCK has a very good return on equity.

Also, if you are choosing to calculate RoE on closing equity against P&L excluding revaluation gains over the last year, this will tend to understate the returns for low-div companies and companies with positive revaluation gains.

[Scrunch]

Also you can view new hotels as a negative.

I prefer to view it as a positive. It indicates that other participants in the hotel industry see sufficient future returns to build new hotels and invest at 100% of current market values. Why not share their optimism and buy MCK hotels at a significant discount to assessed valuations. Having a side-bet on CDL as part of your investment is also nice.

If the outlook for the sector was terrible, I'd be surprised if there was much new-build activity and some existing hotels would be being converted to other uses where a better return was available.

Disc holder