Share Investor: Sky City Entertainment Group

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

Friday, November 12, 2010

Failed Sky City bid for Christchurch Casino good news for Shareholders

The refusal from Skyline Enterprises Ltd [SKYLINE] of a bid for their 50% share in the Christchurch Casino from Sky City Entertainment Group Ltd [SKC.NZX] is good news for Sky City investors.

This is why.

Sky City has a stated criteria that current investments and asset purchases must meet a return that nets 15% or more. Much of their current business overall meets that criteria. The total purchase cost for 100% the Christchurch Casino has been conservatively estimated by me at around NZ$250 million and last years $6.9 million net profit for the 50% of the casino that Sky City owns would extrapolate into a total of $13.8 million or a 5.5% net return.*

This figure would be lower than the cost of financing such a deal.

I am puzzled that the company would make such a move** considering it doesn't meet their investment criteria. I can only assume that owning the Christchurch Casino outright would have enabled to develop and grow the property to perhaps eventually meet that criteria but eventually is not the same as its current return.

Clearly Skyline want more for the casino or just see it as a good investment in the pool of assets that currently makes up its business. Skyline own the business from a much lower entry cost than Sky City so the returns for their share of the casino would be much higher than what Sky City get for theirs, so the cost Sky City would have to pay if they wanted to make a successful bid would have to be way over the reported $100-110 million that they made last week.

A lucky escape thus far.

Footnote

*These figures differ from those that I used in my previous post about this topic. The $6.9 million figure in the previous post I stated was an Editda figure and took my estimates from that. In the 2010 Annual Shareholder Review it states it as Editda but Nigel Morrison tells me it is NPAT.

The shareholding I stated in the previous post was also incorrect. It is 50% and not 54.3% as I stated. The confusion comes in through various different tranches of Christchurch Casino shares purchased at 3 different times, the latest being in October 2010. One purchase included a rather complicated transaction where both Skyline and Sky City bought equal shares from a joint partnership in a hotel.

**I was so curious as to why SKC made this bid that didn't meet their investment criteria that I contacted SKC CEO Nigel Morrison earlier this week and including him putting me straight about my estimated figures based on incomplete data from their 2010 Annual Reports he had this to say in relation to a question to him as to whether the company would up the price for their initial bid.

"I can't comment any further other than to say we are confident that any such investment would realize our stated investment hurdle rate."

Sky City Entertainment Group @ Share Investor

Sky City Entertainment Group Ltd: Christchurch Casino bid falls short of Investment Criteria
Sky City Entertainment Group Ltd: Never mind the width feel the volume
Sky City Annual Meeting & 2011 - 2012 Profit Forecast
Stock of the Week: Sky City Entertainment Group Ltd
Sky City set to lose National Convention Centre bid
Sky City Entertainment Group: Australian Acquisition on the Cards?
Sky City Entertainment Group Ltd: 2010 Full Year Profit Analysis
Sky City Entertainment Group 2010 Full Year Profit Preview
Chart of the Week: Sky City Entertainment Group Ltd
Share Investor discusses Convention Centre proposal with CEO Nigel Morrison
Share Investor Q & A: Sky City CEO, Nigel Morrison
Sky City Entertainment: CEO Nigel Morrison discusses 2010 HY
Sky City Convention Centre Expansion a Money Loser: Part Two
Sky City Convention Centre Expansion a Money loser
Sky City Entertainment Group Ltd: Download full Company analysis
Sky City 2010 full year profit looking good
Long Term View: Sky City Entertainment Group Ltd
Sky City Entertainment: CEO Nigel Morrison discusses 2010 Half Year
Sky City Entertainment Group 2010 Interim Profit Review
Sky City to focus on Gaming
Sky City debts levels now more manageable
Insider Trading on Sky City shares
Sky City Profit Upgrade: Always on the Cards
Sky City's Current Cinema "Boom" a Horror Story in Disguise
Stock of the Week: Sky City Entertainment Group
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

Sky City Convention Centre @ Share Investor

Share Investor discusses Convention Centre proposal with CEO Nigel Morrison
Sky City Convention Centre Expansion a Money Loser: Part Two
Sky City Convention Centre Expansion a Money loser
SKC Convention Centre power-point slide illustrations & SKC submission to Auckland City Council

Discuss SKC @ Share Investor Forum
Download SKC Company Reports

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c Share Investor 2010

Wednesday, November 10, 2010

Sky City Entertainment Group Ltd: Christchurch Casino purchase would fall short of company investment criteria

An update at the bottom of this post, originally made yesterday, confirms a bid was made by SKC and rejected by Skyline.

A whisper out yesterday that Sky City Entertainment Group Ltd [SKC.NZX] looks set to buy up the half share in the Christchurch Casino they don't already own isn't news to me.

In a June 15 interview with SKC CEO Nigel Morrison he indicated that the company was interested in Australian casino assets should they fit their investment criteria and purchase price and he indicated the company had access to just over NZ $1 billion for any acquisition opportunities should they arise.

The Christchurch Casino was purchased by SKC in June 2004, off Aspinall (NZ) Limited, which held a 40.5% shareholding in Christchurch Casinos Limited. The purchase price was NZ$93.75 million and in October 2010 SKC bought an 8.6 % stake held by Invercargill businessman Louis Crimp's Southern Equities, to take their holding to near 50%. In 2008 SKC bought a 5.2% stake off their then business partner the Crowne Plaza Hotel, taking their ownership interest in Christchurch Casino to 45.7%. With the 8.6% stake then SKC control the company with a 54.3% stake.

The cost of the 8.6% stake is likely to be around the $20 million mark if the rumoured purchase price of $100-110 million for the remaining 47.5% stake in the Christchurch Casino is accurate (it says 50% in the article but this is incorrect) and by the same rationale the 5.2% stake would be worth around $14 million.

This puts the purchase value of first 54.3% share of the combined stake of Southern Equities and Aspinall at around $128 million, so the rumoured $120 million max for the remaining 47.5% stake that Skyline Enterprises [SKYLINE] holds looks good value by comparison.

Sky City management have a set investment criteria when assessing an asset purchase or business. It must return a net income on investment of at least 15% before shareholder moola is plunked down on the table.

Would the Christchurch Casino purchase meet that criteria?

Editda for FY 2010 for Christchurch was $6.89 million for their at the time 45.7% stake so with a full 100% stake the Editda would be around $15 million. Take out a 35% cut for income and other taxes and expenses and the Net Profit for a 100% stake is around $10 million.

With a combined estimated purchased price for the whole casino at around $250 million a $10 million net profit is a 4% net return on the purchase price.

Some of my figures are of course ball-park guesstimates based on some raw available data but I think they are roughly in the pitch.

My question to Nigel would be, if you are buying the rest of the Christchurch Casino, why are you not sticking to your stated investment criteria?

Disclosure: I own SKC shares in the Share Investor Portfolio

UPDATE - 10/11/10

SKYCITY is aware that there has been discussion and uncertainty as to whether it has made a proposal to Skyline Enterprises to acquire the 50% interest in Christchurch Casino which SKYCITY does not hold.

SKYCITY wishes to confirm that it has advised Skyline Enterprises of a cash offer that it is willing to make for its interest in Christchurch Casino.

The Board of Skyline Enterprises has rejected SKYCITY's approach.

Thursday, November 4, 2010

Sky City Entertainment Group Ltd: Never mind the width feel the volume

Sky City Entertainment Group Ltd [SKC.NZX] shares have put on more than 10% since last Friday when a positive first quarter 2011 market update. It was trading at $2.90 the day before the news and traded at $3.20 at close of business yesterday. (see one month chart above)

I am a bit annoyed because I am a long term shareholder, I know things are going well for the company and the share price was looking like weakening before this positive news. I was hoping to buy more with the Share Investor Portfolio dividend pool.

Be that as it may the rally in the share price looks to be a sustainable one, at least for the short term. I say this because the first day of trading after the news volume was well up on the average and has increased steadily since then and thus far has peaked at just over 8 million shares traded yesterday. Nearly $50 million in shares have been traded in the 4 days since, compared to $12 million in the 4 days prior.

Depending on the fallout from today's Fed quantitative easing, it is looking like another positive day for the stock again today.

For those of you into this stock short term, watch for the volume movement to give you an indication of when to bail.

Looking like a great update for the portfolio update on Monday.

Sky City Annual Meeting Docs & Related Reading

Monday, November 1, 2010

Sky City Annual Meeting & 2011 - 2012 Profit Forecast

Sky City Entertainment Group Ltd [SKC.NZX] had their 2010 Annual Meeting last Friday and outlined their recent results and where the company is headed in 2011.

The following key points came from this meeting:

SKC held its AGM today and provided a trading update for the first quarter. Underlying revenues grew 3.3% while normalized NPAT grew by a similar margin.

Underlying NPAT excluding the Cinema business lifted 5%. This was a pleasing performance given the economy in NZ and headwinds in Darwin.

The international business revenue was up 85% compared to the first quarter. This was the standout of the first quarter’s performance. A vast majority of this growth occurred in Auckland.

The company is making strategic investments in Auckland, Darwin and Adelaide which will lift capital expenditure.

No guidance was provided but management said it would be disappointed if it did not achieve consensus NPAT of NZ$127.4m for FY11. This represents a modest decrease over the prior period. “GST increase coupled with cautious spending makes it difficult to predict the full year outcome”.

A research report from Aspect Huntly out October 30 contains the following forecast for 2011 and 2012:

We are modestly cutting our FY11 forecast to NZ$129m to bring it closer to consensus forecast. We should see a pick up in second half earnings especially for Darwin as comparisons become easier. However the Auckland performance is a big unknown. Should the economy gain strength we could see SKC deliver NPAT growth in FY11.

A significant boost in earnings is expected during the Rugby World Cup. Auckland earnings is expected to increase by 20-25% in 1H12 compared to 1H10. This growth will be evenly split between gaming and non gaming income. We are introducing our FY12 NPAT forecast of NZ$140m.

Comments by me on the two streams of forecast information from SKC management and Aspect Huntly tend to favour forecasts by management rather than Aspect. Forecasting profit can be a lot like doing the same with the weather but Aspect's point about the impact of the 2011 Rugby World Cup on the 2012 full year profit is a good one. I would add that I see the bulk of the extra revenue coming from a boost from non gaming income rather than gaming at the Auckland Casino and one should not discount revenue boosts from their other New Zealand casinos in Hamilton Christchurch and Queenstown and to a much lesser extend their casinos in Australia in Darwin and Adelaide.

Interesting that the company is also looking at taking full control of the Christchurch Casino which they currently have an approximately half share in and a big spend up in facilities across the bulk of their casino properties including further gaming possibilities across the ditch. This will clearly have implications for significant increased debt levels in 2011 onwards.

I am confident that the company can exceed their own forecast of $127.4m for FY11 based on the latest operating data for the current quarter ended on September 2010 but remain cautious about increased debt levels.

Sky City Annual Meeting Docs & Related Reading

Wednesday, October 13, 2010

Stock of the Week: Sky City Entertainment Group Ltd

Monday, September 27, 2010

Sky City set to lose National Convention Centre bid

For all intents and purposes the possibility of Sky City Entertainment Group Ltd [SKC.NZX] getting the go ahead from politicians for the right to build and operate a National Convention Centre with the benefit of taxpayer money and all the business that would bring to the SKC gaming floor is pretty much dead and buried.

I have easily come to this conclusion because over the last week Mayoral candidates John Banks and Len Brown have both come out and backed the new Auckland "Supercity" and its bid for a convention centre in and around the Aotea Centre.

The Sky City and council bids are 2 of 5 that are bidding to build the national Convention Centre, at a cost of around $400 million, but politics has taken over sense in the Mayoral race because it wouldn't be seen as "fair" to subsidise a company like SKC for them to build an asset that they would benefit from - after all it is a big bad casino!

The thing is though, any winner in the race to build a convention centre would get the benefit of the taxpayer subsidy so the issue of favouritism would only be one of Council vs private business and this argument was won by private business many decades ago. Private business always does it better.

The only other arguments that remain are which is the best site and what will be the running costs be.

I agree with the NZ Herald that the best convention site would be a central city one, so that rules out the the ASB Showgrounds bid at Greenlane. A Ngati Whatua proposal for Quay Park, alongside the Vector Arena, and an Infratil Ltd [IFT.NZX] bid for the Wynyard Quarter .

The Herald is wrong about picking the council development though.

Sky City is the most appropriate site in terms of its centrality to the city and its amenities.

It is close to all the best hotel rooms, including Sky's almost 1000 rooms and its 3000 carparks, close to the tourist area of the Viaduct harbour, close to the best restaurants in Auckland, central to most public transport routes and motorways and the easiest to develop because of the sites undeveloped nature.

The big plus though will be the ongoing subsidisation by Sky City for the running costs of the convention centre, which will run into many 10s of million per annum. Of course if the council bid wins, these costs will be bourne by the Auckland ratepayer and they are clearly substantial.

Convention Centres do not make money as a standalone businesses and the justification for them being built is that they "bring custom to the city and surrounding businesses". This is the main reason that both Sky City and the council want to build their respective convention centres.

In my opinion then, the best place for a National Convention Centre is at the Sky City Complex. It will cost the taxpayer and ratepayer less initially and the ongoing cost savings would be the biggest advantage. It is also is in the best most central site, that is probably the most recognised man made icon in Auckland from just about every part of the city.

It looks like the Auckland City Council bid is locked and loaded though and that is a missed opportunity that will cost Auckland ratepayers dearly for many more years to come.

Disclosure: I own SKC shares in the Share Investor Portfolio

Sky City Convention Centre @ Share Investor
Share Investor discusses Convention Centre proposal with CEO Nigel Morrison
Sky City Convention Centre Expansion a Money Loser: Part Two
Sky City Convention Centre Expansion a Money loser
SKC Convention Centre power-point slide illustrations & SKC submission to Auckland City Council

Sky City Entertainment Group @ Share Investor

Sky City Entertainment Group: Australian Acquisition on the Cards?
Sky City Entertainment Group Ltd: 2010 Full Year Profit Analysis
Sky City Entertainment Group 2010 Full Year Profit Preview
Chart of the Week: Sky City Entertainment Group Ltd
Share Investor discusses Convention Centre proposal with CEO Nigel Morrison
Share Investor Q & A: Sky City CEO, Nigel Morrison
Sky City Entertainment: CEO Nigel Morrison discusses 2010 HY
Sky City Convention Centre Expansion a Money Loser: Part Two
Sky City Convention Centre Expansion a Money loser
Sky City Entertainment Group Ltd: Download full Company analysis
Sky City 2010 full year profit looking good
Long Term View: Sky City Entertainment Group Ltd
Sky City Entertainment: CEO Nigel Morrison discusses 2010 Half Year
Sky City Entertainment Group 2010 Interim Profit Review
Sky City to focus on Gaming
Sky City debts levels now more manageable
Insider Trading on Sky City shares
Sky City Profit Upgrade: Always on the Cards
Sky City's Current Cinema "Boom" a Horror Story in Disguise
Stock of the Week: Sky City Entertainment Group
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

Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions) by Benjamin Graham Buy new: $41.77 / Used from: $32.40 Usually ships in 24 hours

Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions) by Benjamin Graham
Buy new: $41.77 / Used from: $32.40
Usually ships in 24 hours

c Share Investor 2010

Share Investor

Friday, November 12, 2010

Failed Sky City bid for Christchurch Casino good news for Shareholders

Wednesday, November 10, 2010

Sky City Entertainment Group Ltd: Christchurch Casino purchase would fall short of company investment criteria

Thursday, November 4, 2010

Sky City Entertainment Group Ltd: Never mind the width feel the volume

Monday, November 1, 2010

Sky City Annual Meeting & 2011 - 2012 Profit Forecast

Wednesday, October 13, 2010

Stock of the Week: Sky City Entertainment Group Ltd

Monday, September 27, 2010

Sky City set to lose National Convention Centre bid

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