Share Investor: Sky City Entertainment Group

Showing posts with label Sky City Entertainment Group. Show all posts

Monday, August 2, 2010

Sky City Entertainment Group 2010 Full Year Profit Preview

Sky City Entertainment Group Ltd [SKC.NZ] announces its 2010 full year profit on Tuesday 17 of August and it is going to be a record one. The company itself has indicated a net profit ranging from $126-132 million but the market seems to be indicating - if its share price has anything to do with anything at all - that profit could be at the top of this range or higher. The share price has gained slightly more than 5% over the last month and it is typical of this stock (and probably most other NZX listed stocks) to rise if insiders know profit results are going to be higher than expected.

In May I gave some reasons why the August result would be a good one:

In addition to the continued cost savings through paying down debt and other business costs there will be a gross $60-70 million from the proceeds of the sale of their cinema business which will be an approximate $10 million straight to the bottom-line. This would already be accounted for but the contribution to the 2010 full year is unclear because there is additional disposal of associated cinema assets that may not be sold before the June 30 financial year end.

One big determinant for the full year profit figure will be the Australian/Kiwi dollar cross. Back in August 2009 the Kiwi was buying over 81c Australian and over the last half has been trading well below 80c. Its Australian casino assets in Darwin and Adelaide have been trading well and the currency swap from revenue exported to head office in Auckland should give a good boost.

A solid 2010 result will continue a good run for SKC since its $NZ115 million 2009 full year result and will mean an increased dividend of at least 7.5c on the 6.5 paid out last year.

The market has reinforced my positive feeling that I got after interviewing CEO Nigel Morrison in mid June and my visit to the Auckland site and a good look around at how business was going on that particular day.

I have been a shareholder in SKC since 2003 and it makes up slightly more than one third of the Share Investor Portfolio and the August result is one of my most anticipated profit releases for this company for I think it will show how well the CEO has done since his appointment in March 2008.

In two years he has done well to turn the company around from the poor management of former CEO Evan Davies. One of the reasons he was hired because he was well known as a casino "Mr Fixit" and he has done what he was employed for and more.

I look forward to him telling us where the company is headed over the next year and what new strategies he might have to grow revenue and profit.

Disclosure: I own SKC shares in the Share Investor Portfolio

Sky City @ Share Investor

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c Share Investor 2010

Tuesday, June 15, 2010

Share Investor discusses Convention Centre proposals with Sky City CEO Nigel Morrison

I have been very critical of the plans that Sky City Entertainment Group [SKC.NZ] have for either expansion of their present convention centre or the building of a new one. They are known money losers.

With this in mind I sat down with CEO Nigel Morrison yesterday and discussed the details and various proposals along with a few sidebars along the way. It is the first time I have met him personally, previous interviews have been conducted via email questions.

Here is what I can tell you at present about SKC's convention centre plans, there is detail that Nigel had to keep to himself.

We sat down at the Rebo Cafe just off Federal Street.

On the extension of the present convention centre located in the Sky City Grand Hotel complex Mr Morrison indicated that shareholder money would be spent on upgrading and allowing for more delegates beyond its present capacity but costs would be hopefully mitigated by increased revenue from foot traffic to the casino (via the current footbridge) and patronage to a number of bars and eating establishments to be developed in the Federal Street precinct. Some Council money will also be used to fund this expansion and there are negotiations underway at present as to how much that will be.

Interestingly Nigel would not be opposed to being a landlord in respect of any food and beverage outlets developed and for existing operators in other parts of the city to occupy spaces in Sky City owned real estate.

A very exciting possibility exists in Federal Street (see power-point slide illustrations & SKC submission to Auckland City Council for more detail) to lever off patronage there and get customers to the door of the casino. The Auckland Casino has been pretty much flat revenue wise over the last few years and Nigel indicated that this was the best use of shareholders money to enable the possibility of growth again, more attractions means more revenue in theory.

In terms of the National Convention Centre, which would be built on Hobson Street next to TVNZ, if it went ahead, around $400 million would be spent developing it, with the bulk of the money coming from the taxpayer, with a relatively small input from Sky City shareholders.

I had previously thought that the bulk of the funding would come from SKC but to leverage off the taxpayer in this way would be a major benefit for the company (sadly the benefit to the taxpayer is a negative one)

Nigel himself admitted many convention centres make little or no margin - they in fact tend to lose money - and also indicated that the rationale for getting into both their convention proposals was that that had to return a net income on investment of at least 15% before they went ahead. This 15% margin would come from increased patronage to the casino floor and the bars and food offerings that the company are keen on expanding.

Off the topic of convention centres Nigel indicated that the Australian casino sector was likely to consolidate over the next couple of years with Tabcorp Ltd [TAH.ASX] a company under a fair amount of pressure as its Victorian gaming/wagering licenses expire.

Mr Morrison indicated that the Sydney casino Star City was the jewel in the crown in terms of gaming in Australia and while well run, its potential was not being fully exploited.

SKC has paid down a considerable amount of debt over the last year or so, with a capital raising in 2009 so far contributing the bulk of that. Mr Morrison indicated that his company has a balance sheet and credit resources that would make it open to any opportunity to purchase the right gaming assets at the right price should a shake up in the Australian gaming sector arise and he seems confident that this will happen in the next few years.

Nigel knows the Australian gaming sector well and has almost 20 years experience in this industry.

On the possibility of expansion of the casino sector in New Zealand he doesn't see the likelihood that Government would relax the present restrictions allowing more competition but that if it did (after a suggestion that Wellington would be a good place for a casino) they would be interested in a casino in at location.

Little indication of how well the second half of 2010 has gone from Nigel (2 weeks until year end) but if there is any indication at all results are tracking to a record profit of between $126-132 million and that has been forecast by SKC management itself.

I think given cost reductions, a sale of the cinema assets and reduced interest costs on paid down debt the profit is likely to be on the higher side of this estimate, if not higher.

Disclosure: I own SKC shares in the Share Investor Portfolio

Share Investor Q & As

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Monday, May 24, 2010

Sky City Convention Centre Expansion a Money Loser: Part Two

With news out over the weekend that Sky City Entertainment Group Ltd [SKC.NZ] intends to extend its expansion of its present centre to include a bid for a much larger and far more expensive stand alone "National Convention Centre", should leave SKC shareholders in fear of future profits and indeed the viability of the company in the medium to long-term.

I have fears about the $40 million expansion of the present convention centre and the dubious reasons for spending money on something with little or negative returns.

A new National Convention Centre, if built by Sky City, would be located as a standalone development on Hobson Street by the TVNZ centre.

Estimates of a price tag range from NZ$300-$550 million would clearly need SKC to either draw down on their $1 billion credit-line or go to the market for additional funds from shareholders and/or institutions and would be the biggest single capital expenditure for the company since its flagship Auckland Casino was developed in the mid nineties.

If Sky City borrowed say $400 million at their current rates of financing at around 7.5% per annum the convention centre would have to return a net profit from it of $30 million per annum just to cover financing costs. It simply doesn't stack up if you look at the figures.

In the absense of evidence of any good return on capital expense and ongoing running costs being a massive being a permanent drain, a convention centre built by Sky City just looks like monument building and justification of this sort of cost to shareholders should be put to the vote before anything goes ahead.

Let the local politicians build such a convention centre, if it is needed at all, at least then the ongoing losses would be spread around ratepayers rather than just long suffering SKC shareholders like my good self.

Disclosure I own SKC shares in the Share Investor Portfolio

Share Investor Interview

Share Investor Interview: Sky City CEO, Nigel Morrison - November 2009
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Sky City Entertainment Group Ltd: Download full Company analysis
Sky City 2010 full year profit looking good
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Sky City Entertainment Group 2010 Interim Profit Review
Are Insiders selling Sky City Stock?
Sky City Entertainment 2009 Interim Result Preamble
2008 Sky City profit analysis
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Sky City Entertainment 2008 Full Year profit results , NZX release, 2008 full year presentation, result briefing webcast, financial statements
Sky City 2008 profit preamble
Sky City outlines a clear future plan
As recession bites Sky City bites back
Sky City Assets: Buy, sell and hold
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Sky City half year exceptional on cost cutting
NZX Press release: Sky City profit to HY end Dec 2007
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Opposition to takeover
Premium for control
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Discuss SKC @ Share Investor Forum

c Share Investor 2010

Friday, May 14, 2010

Sky City Convention Centre Expansion a Money loser

The proposal for Sky City Entertainment Group Ltd [SKC.NZ] to build an extension to its Auckland conference centre while on first look appears positive, if you look closer its validity as a revenue earner, for the centre itself and then providing extra foot traffic to the casino doesn't stack up as a good return for shareholders.

I have been googling around and this has confirmed by suspicions that the majority of convention centres just do not make money and are in fact capital losers.

"The center was promised to bring out-of-towners who stayed in hotels and spent money," said Heywood Sanders of the University of Texas at San Antonio, who studies the performance of convention centers and is a longtime critic of such publicly financed projects. "They routinely overpromise, and they never do what they're supposed to do. The question is how badly they perform. Putting in a hotel is no guarantee that it will improve the center's performance."

Washington Post: Heywood Sanders of the University of Texas at San Antonio - Researcher of Convention Centre performance.

Convention centres are generally built and run by local Governments because of the poor economic returns (it seems it is OK for them to lose money because it is only the taxpayer forking out moola) and the premise seems to be that the centre itself will not make money but that it will bring high spending convention delegates into town that would not ordinarily be there and that their largess would then be spent in businesses in the local area.

For Sky City this would hopefully mean more hotel rooms used and more money spent in its bars, restaurants and with fingers crossed its casino but this is not necessarily a given if you look at the example above and your own convention centre in your own local town or city. Sky City has a casino patronage of more than 80% locals so the convention centre crowd is unlikely to increase bums on slot machine seats.

The impact on Sky City shareholders will be felt first at the capital expenditure stage of any proposal going ahead and secondly future running costs of the larger centre. (this also appears to be where the proceeds of the sale of SKC cinema assets are going - $60-70 million worth) The extension of the Federal Street centre is a complex one with the street needing possible under-grounding and the expansion itself being suspended in open air over the street.

The success for Sky City shareholders (and when a say success I mean a decent return on investment) seems to lie in getting enough extra traffic through Sky City complex in order to get the increased revenue to justify the initial expense but as studies have found this does not usually eventuate, so the Sky City Convention Centre expansion would be an exception to the rule if it were a ripper of a money earner.

Management are clearly trying to squeeze more revenue and profit from their biggest money earner and that is admirable but expanding their convention business is not going to do that.

Best to let the willing city fathers (but unwilling and poor ratepayers may I add) spend ratepayer moola on a convention centre just around the corner and target the stragglers from there.

Read Sanders Paper - PDF

Disc I own SKC shares in the Share Investor Portfolio

Share Investor Interview

Share Investor Interview: Sky City CEO, Nigel Morrison - November 2009
Sky City Entertainment: CEO Nigel Morrison discusses 2010 Half Year

Sky City @ Share Investor

Sky City Entertainment Group Ltd: Download full Company analysis
Sky City 2010 full year profit looking good
Sky City Entertainment: CEO Nigel Morrison discusses 2010 Half Year
Sky City Entertainment Group 2010 Interim Profit Review
Are Insiders selling Sky City Stock?
Sky City Entertainment 2009 Interim Result Preamble
2008 Sky City profit analysis
Sky City share offer confusing and unfair for smaller shareholders
Sky City Entertainment 2008 Full Year profit results , NZX release, 2008 full year presentation, result briefing webcast, financial statements
Sky City 2008 profit preamble
Sky City outlines a clear future plan
As recession bites Sky City bites back
Sky City Assets: Buy, sell and hold
Why did you buy that stock? [Sky City Entertainment]
Sky City Share Volumes set tongues wagging
Sky City half year exceptional on cost cutting
NZX Press release: Sky City profit to HY end Dec 2007
Sky City Cinemas no Blockbuster
Sky City Entertainment share price drop
New Broom set to sweep
Sky City Management: Blind, deaf and numb
Sky City sale could be off
Opposition to takeover
Premium for control
Sky City receives takeover bid
Sky City Casino Full Year Profit to June 30 2007
Setting the record straight
Sky City CEO resigns
Sky City Casino: Under performing
Sky City Casino 2007 HY Profit(analysis)
Sky City Casino 2007 HY Profit

Discuss SKC @ Share Investor Forum

c Share Investor 2010

Tuesday, May 11, 2010

Sky City Entertainment Group Ltd: Download full Company Analysis

Sky City Entertainment Group Ltd [SKC.NZ] financial's including a full collection of data out May 10 2010 courtesy of Aspect Huntley/ASB Securities.

This is a series I will do for the Share Investor Portfolio and other NZX listed companies.

You will find balance sheets, ratios, charts, shareholder returns, 10 year analysis, broker recommendations, substantial shareholders, commentary and company details, forecasts and all the SKC info you could need to make a decision whether to invest or not. Download the full package at Share Investor Forum - you must join to download. It is free and takes less than a minute.

Disclosure: I own SKC shares in the Share Investor Portfolio

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Share Investor Interview

Share Investor Interview: Sky City CEO, Nigel Morrison - November 2009
Sky City Entertainment: CEO Nigel Morrison discusses 2010 Half Year

Sky City @ Share Investor

Sky City 2010 full year profit looking good
Sky City Entertainment: CEO Nigel Morrison discusses 2010 Half Year
Sky City Entertainment Group 2010 Interim Profit Review
Are Insiders selling Sky City Stock?
Sky City Entertainment 2009 Interim Result Preamble
2008 Sky City profit analysis
Sky City share offer confusing and unfair for smaller shareholders
Sky City Entertainment 2008 Full Year profit results , NZX release, 2008 full year presentation, result briefing webcast, financial statements
Sky City 2008 profit preamble
Sky City outlines a clear future plan
As recession bites Sky City bites back
Sky City Assets: Buy, sell and hold
Why did you buy that stock? [Sky City Entertainment]
Sky City Share Volumes set tongues wagging
Sky City half year exceptional on cost cutting
NZX Press release: Sky City profit to HY end Dec 2007
Sky City Cinemas no Blockbuster
Sky City Entertainment share price drop
New Broom set to sweep
Sky City Management: Blind, deaf and numb
Sky City sale could be off
Opposition to takeover
Premium for control
Sky City receives takeover bid
Sky City Casino Full Year Profit to June 30 2007
Setting the record straight
Sky City CEO resigns
Sky City Casino: Under performing
Sky City Casino 2007 HY Profit(analysis)
Sky City Casino 2007 HY Profit

Discuss SKC @ Share Investor Forum
Download SKC Company Reports

Recommended Amazon Reading

The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy new: $14.95 / Used from: $6.99
Usually ships in 24 hours

c Share Investor 2010

Sky City 2010 full year profit looking good

Come late August 2010, Sky City Entertainment Group [SKC.NZ] look set to announce a record profit of between $126-132 million and that has been forecast by SKC management itself.

I think they could well surprise on the upside though.

This is why.

In addition to the continued cost savings through paying down debt and other business costs there will be $60-70 million from the proceeds of the sale of their cinema business which will be an approximate $10 million straight to the bottom-line. This would already be accounted for but the contribution to the 2010 full year is unclear because there is additional disposal of associated cinema assets that may not be sold before the June 30 financial year end.

One big determinant for the full year profit figure will be the Australian/Kiwi dollar cross. Back in August 2009 the Kiwi was buying over 81c Australian and over the last half has been trading well below 80c. Its Australian casino assets in Darwin and Adelaide have been trading well and the currency swap from revenue exported to head office in Auckland should give a good boost.

A solid 2010 result will continue a good run for SKC since its $NZ115 million 2009 full year result and will mean an increased dividend of at least 7.5c on the 6.5 paid out last year.

Sky City Entertainment shares have been savaged over the last few weeks dropping from a range trading between $3.25- $3.30 to trade last today up 4c to $3.04.

Disclosure: I own SKC shares in the Share Investor Portfolio

Share Investor Interview

Share Investor Interview: Sky City CEO, Nigel Morrison - November 2009
Sky City Entertainment: CEO Nigel Morrison discusses 2010 Half Year