Market Watch: Sky City Entertainment/Freightways Ltd

Interesting that both Sky City Entertainment Group [SKC.NZ] and Freightways Ltd [FRE.NZ] respective share prices are both approaching the price at which their recent capital raisings were issued at.

Lets have a wee look at Sky City first.

Today the stock closed at NZ$2.62 (see 2 month SKC chart below) just 1c above the $2.61 Share Purchase Plan (SPP) price, a purchase plan that I participated in just a month ago.

At the time I moaned and bitched that my current Sky City shareholding was going to be diluted, only getting just shy of 2000 shares in the offer. I had a feeling that the share price was going to take a dip because of economic circumstances (gee I am a genius), so I am going to take the opportunity to grab a few more thousand shares to top up my holding to 40000 or more .

Naturally I am very pleased about this turn of events in the market.

Likewise Freightways. I got gypped there too, and will be looking for at least another 1000 more shares to top up my holding to 10000. The current share price is $2.84 as of market close today so there is still another 40c to go before it will trigger a buy at the SPP of $2.44 but if you look at the Freightway's 2 month chart below you will see, like Sky City, the share price trajectory is in a downwards direction, so is possible that my buy price will be reached.



Time to put some cashflow to good use.


Freightways @ Share Investor

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Sky City @ Share Investor

Sky City share offer confusing and unfair for small shareholders
Sky City CEO doubles down
Sky City Entertainment 2009 Interim Profit Review
Sky City Entertainment 2009 Interim Result Preamble
2008 Sky City profit analysis
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
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New Broom set to sweep
Sky City Management: Blind, deaf and numb
Sky City sale could be off
Opposition to takeover
Premium for control
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c Share Investor 2009

Freightway's Capital Raising more of the same crap for small shareholders

I have been moaning, bitching and hitting my head against a brick wall recently because of how totally unconscionable a number of NZX listed companies have been towards their shareholders when it comes to the flurry of capital raisings that have happened over the last few months.

Scant little care and only lip service has been given to small shareholders like you and me.

The three capital raisings that I have participated in so far : Sky City Entertainment [SKC.NZX] , Fletcher Building Ltd [FBU.NZX] and Freightways Ltd [FRE.NZX] have all favoured the larger shareholders or in fact recent interlopers who haven't been shareholders at all. They received concrete shareholdings at a definite price, without having to stump up "lost cash" that stays in someone else's bank account until credited back to the recipient with their meagre allotment of shares.

Small shareholders have had to stump up the maximum amount of cash to get a scaled down number of shares at a price they are unsure of until after the offer is closed.

The latest stinker has been the Freightway's share offer that wanted NZ$5,000,000.00 from small shareholders but was over subscribed by 1040%!

As Kelvin Hartnall points out institutions got a great deal:

The total amount provided by small investors was $57 million, which is more than the total capital raising combined. This shows that it was completely unnecessary to dilute the share-holdings by giving institutions such a great deal. Essentially the institutional investors have received a great bargain at the expense of small investors.

I sent in the maximum $12500 and will get less than 500 shares. I needed around 1200 to avoid dilution. Here, from Kelvin Hartnall again is an approximate breakdown of what Freightway's shareholders can expect to get some time next week:

Aggregate pool	$5,000,000
Number of share-holders	6,423
Pool available per share-holder	$778.45
Issue price	$2.44
Shares available per share-holder	319

This favouritism to the big boys is more of the same we small guys have expected and we have little protection from securities law, the NZX or any independent body. Bruce Sheppard from the Share Holders Association has been vocal as usual but has been met with the typical stoney silence or bullshit from company management along the lines of "well that is the best we can do in this economic environment".

Clearly that is wrong. Share offers for every good company that has made one so far have been wildly over-subscribed, so the moola is out there.

Other companies have at least made an attempt to even the financial playing field in their capital raisings by using rights issues to raise money. As rights issues are structured, a non -renouncable rights issue is one where shareholders are given the right to purchase new shares according to the number of shares they hold or they can forgo those rights if they wish. On the other hand a renouncable rights issue would allow shareholders to trade those rights to others should they not want to take up the rights offer.

In my opinion a renouncable share offer is the fairest way of raising capital because you get to buy in proportion to the shareholding you have and if new shareholders wish to participate in the capital raising they can buy the rights off you.

After that if there is a capital shortfall then and only then should institutions get a crack at stumping up some cash and the incentive to offer them a better deal, at the back end, would not only be appropriate but more than warranted.

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Freightways @ Share Investor

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c Share Investor 2009

Are you experienced?

Further to yesterday's rant about how confusing and unfair I thought the Share Purchase Plan (SPP) and top up offer for Sky City Entertainment [SKC.NZ] I can add a bit more meat to the bones after having spoken to my broker at ASB Securities, Bruce MacDonald, in charge of investor relations at Sky City and the hacks at Computershare, the company acting on behalf of Sky City for the small shareholder capital raising.

ASB Securities

This broker had received many inquiries over this top up offer as to qualifications that made investors eligible to apply under that offer, specifically what "experienced investor" and "wealthy" meant in terms of eligibility.

From Securities Amendment Act 2004

• “(2CC) For the purposes of subsection (2CB), a person is an eligible person if the person is 1 or more of the following:

  • “(a) wealthy (as defined in subsection (2CD)):

  • “(b) experienced in investing money (as defined in subsection (2CE)):

  • “(c) experienced in the industry or business to which the security relates (as defined in subsection (2CE)).

• “(2CD) For the purposes of subsection (2CC)(a), a person is wealthy if an independent chartered accountant certifies, no more than 6 months before the offer is made, that the chartered accountant is satisfied on reasonable grounds that the person—

  • “(a) has net assets of at least $2,000,000; or

  • “(b) had an annual gross income of at least $200,000 for each of the last 2 financial years.

“(2CE) For the purposes of subsection (2CC)(b) and (c), a person is experienced in investing money or in the industry or business to which the security relates (as the case may be) if—

“(a) an independent financial service provider is satisfied on reasonable grounds that the person to whom the offer is made, as a result of having experience of that kind, is able to assess—

• “(i) the merits of the offer; and

• “(ii) the value of the security; and

• “(iii) the risks involved in accepting the offer; and

• “(iv) that person's own information needs; and

“(v) the adequacy of the information given by the person making the offer...


I found out when I rang my broker that I don't qualify as an "experienced investor" (even though I thought I was!) as alluded to in the top up offer documents. I would have to have "traded more frequently. and derived an income from those activities and/or have a larger portfolio than my current one.

It seems that these requirements are inserted to protect the "smaller less sophisticated investor", a category which I apparently don't meet either in terms of my Sky City holding and confirmed by both Computershare and Bruce Mac Donald.

Bruce MacDonbald (Sky City Entertainment Investor Relations)

Bruce reiterated much of the above, especially the looking after smaller shareholders part and that the company was restrained by securities law by being unable to offer shareholders like me a large enough parcel of shares as to fully protect from dilution of my shareholding.

This is in reference to the SPP where I can only apply for a maximum of $12500 worth of shares, already short of stopping dilution, and then I may not get the maximum because over subscriptions will mean a scaling down.

So if you own a smaller amount of shares your dilution effect will either be nil or infinitesimal.

Bruce pointed out that the applicable securities law, the Securities Amendment Act 2004 and as far as I can tell the Securities Act 1978 and subsequent amendments(of which there are many)means in effect that the issuer of the shares "must look after the largest number of smaller shareholders possible" and because people like me are somewhere in the middle we sit in some kind of financial black hole (my words) between the small shareholders and larger institutions who participated in the April $230 million placement.

When I pointed out that I was getting shafted Bruce told me SKC simply could have done an institutional placement and forgotten about everyone else but stressed again that "they wanted to be fair to the largest number of shareholders that they could". My counter to that would have been why didn't Sky simply have a rights issue if it had came into my head at the time.

In effect I am getting it from the front and the rear.

Computershare

Computershare pointed out in their usual unfriendly and grudging manner most of the above and added that the way the Sky City offer was structured was the same as Fletcher Building in terms of definitions of eligible investors.

Conclusion

Although paying down sky City debt with he proceeds of the capital raising will lead to higher profits due to less interest paid, the amount I shares I receive under the SPP is unlikely to get me back to pre-capital raising dilution and I have no choice in that at all.

What is a positive though is that I have learnt something over the last few days and every little extra tool in the financial toolbox helps.

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c Share Investor 2009

Sky City share offer confusing and unfair for smaller shareholders

I was going to discuss the merits of owning Contact Energy Ltd [CEN.NZ] shares in the light of takeover signs surfacing recently over that company but I will leave it to another day.

I will instead focus on something today that has left me scratching my head.

Many of those that follow my media machinations closely will know that I own a reasonable number of Sky City Entertainment [SKC.NZ] shares.

There has been a recent capital raising to institutions and large shareholders and now we smaller unimportant shareholders are about to have their opportunity to buy an additional stake to avoid dilution of our shareholdings.

Today I received "top-up" offer documents that allow me to buy 1269 shares in the $5 million offer but I have to be either an "experienced" or "wealthy" investor to participate and I must get a "certificate" from my chartered accountant or my "financial service provider" to prove I am either so I can get my new shares.

The only problem is that I don't have either of the above but then I read on that I will probably not be eligible anyway because the top up offer is conditional on the $35 million Share Purchase Plan (SPP) not being fully subscribed, which is highly unlikely to happen given major oversubscriptions in popular capital raisings thus far completed by listed New Zealand companies.

The other wee problem is that I haven't received the SPP documents or booklet that the covering letter says I should read to determine whether I should consider the offer.

The top up offer seems superfluous to requirements because it gets canned if there is an oversub of the SSP but even if there was going to be a top up many wouldn't bother because they have to be "wealthy" (have net assets of $2 million or gross income of more than 200k for each of the last two years) or be an "experienced investor" and be able to prove both using your accountant or financial advisor.

I really cant be bother with the top up because I cannot bloody fully understand it! and it seems to run counter to commonsense because it probably wont occur anyway.

All I am entitled to then is to apply for a maximum of NZ$12500 of shares and it seems given the large interest in the $230 million SKC corporate capital raising carried out in April and an over subscription in the Fletcher Building offer concluded this week, I am unlikely to get anything close to that figure.

I would need to get my hands on around 5000 shares at the offer price of $2.61 per share in order to stop dilution of my position but unlike the corporates and large shareholders my shareholding in Sky City Entertainment of 7 years is going to be seriously diluted.

I will be applying for the maximum under the SSP.

Contact Energy will follow soon.

Sky City @ Share Investor

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c Share Investor 2009

Sky City CEO doubles down

The rationale for Sky City Entertainment [SKC.NZ] loading up the balance sheet with extra shares and as a consequence around NZ$230 million of cash isn't completely clear to me over the last few days since SKC were put on a trading halt on Tuesday 21.

My confusion is compounded by the fact that the $230 million raised appeared to be for two different reasons, for purchase opportunities and "strengthening the balance sheet" in uncertain times but if a purchase is made how does that strengthen the balance sheet? especially if it involves drawing down on the half a billion in unused credit facilities that Sky City currently has.

I am going try to unwind my confusion and explain my point of view on this subject in the following column.

This from a story in Stuff.co.nz might give you an indication on where I might be heading:

But despite its $916 million of debt, SkyCity plans to put the money it raises in a bank deposit account, at least for now.

Chief executive Nigel Morrison said that was because SkyCity "owes no bankers anything."

Just one question though, if you have access to cash in the bank and a rather large debt hanging around your neck don't you pay some of it down?

Well, Nige did say when posted to his position as CEO last year that one of his main tasks would be to be prudent with shareholder funds:

"Our shareholders have made it clear to us that they want us to focus on maximising the performance of the assets we operate. This is what we will be doing. as we have said previously, we expect to achieve this within an 18-month time frame. We will retain tight control over capital and not expend capital unless we are very confident of healthy returns for shareholders".

The emphasis on unnecessary capital spending in addition to paying down debt has been made several times since then and one could be forgiven for thinking that this task was going to be paramount to everything else until performance at the company was "maximised".

That certainly of direction needed to be achieved as the company has floundered directionless over the last 5 years under the previous CEO Evan Davies.

Now of course Morrison does have to be fleet footed and have the ability to change tack as economic circumstances change but the clear direction that he outlined last year has forked out into another, possibly expensive direction:

"For anybody to suggest that the money it just going to sit on deposit in a bank account earning 3 per cent for three years, that's ludicrous," he said. "It's a position of strength. We're not beholden to any financier or any bank." Morrison said it also gave the company funding for acquisitions should opportunities arise. Full Story

Now I am not about to suggest that Morrison is going to plunder more shareholder money on overpriced assets as Evan Davies did, as his reputation for being a canny operator who rejuvenates casinos is well known but I get a little edgy when he is asking shareholders to put their hands in their pockets to buy more casino assets, even if they are as he said, now going for knocked down prices.

It is the move away from the previous stated 18 month aim of being financially prudent and rejigging the business that has me worried and to then focus on other plans that involve large capital expenditures would be a more realistic goal, especially as those casino assets he may now be talking about could be alot cheaper in 6 months time.

It seems to me that he may already have a target casino in mind.

Time to cross your fingers if you are a shareholder. I am.

Sky City @ Share Investor

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c Share Investor 2009

More Moola Please!

Back on the agenda for this week is the capital raising that is sweeping NZX listed companies.

Apart from the fact that they have been carried out without the permission of shareholders and the NZX has granted them waivers to allow management to do so, there seems to be a pattern forming.

The latest capital raising to be announced was Sky City Entertainment [SKC.NZ] who came out today with an underwritten offering of 71 million shares to institutions and a further NZ$50 million or around 20 million shares in an offer to smaller shareholders like me.

The company really doesn't need the extra funding because its current debt servicing doesn't have to be re-negotiated for a number of years.

This is much like the deal offered from Fletcher Building [FBU.NZ] and Freightways Ltd [FRE.NZ] for extra capital over the last couple of weeks.

Just doing very rough figures in my head the dilutionary effect for shareholders for these 3 companies is around 15%.

What that means to me is the followng to avoid dilution of my shareholdings:

1. Fletcher Building - additional 150 shares

2. Freightways Ltd - additional 1230 shares

3. Sky City Entertainment - additional 5250 shares

What I have decided to do is the following:

1. Fletcher Building - additional 500 shares @ 5.35 per share approx

2. Freightways Ltd - additional 1800 shares @ 2.44 per share approx

3. Sky City Entertainment - maximum of 6000 shares @ 2.52 per share approx


An additional $NZ 22,000 approx that I must find. Not a problem for me and I don't have a big issue with stumping up the cash because as part owner of these businesses sometimes you extract money from them and sometimes you have to put it back in.

As I mentioned above what I do have a big issue with is the lack of consultation with shareholders like me and the NZX's collusion with company management to allow them to bypass owners rights and give institutions preferences that smaller shareholders dont get. I would have said yes to company requests (sans the institutional favouritism) for more capital but I nevertheless should be asked in the first place.

I own part of these companies after all !

It has sent me into a kind of Bruce Sheppard mode on speed but there is very little I can do except make it known here that I am an unhappy camper.

As I said back in early January capital raising is set to become popular this year and it has by no means finished yet.

Nuplex Group [NPX.NZ], Fisher & Paykel Appliances [FPA.NZ], Kiwi Income Property Trust [KIP.NZ] and a whole host of other companies have already had out the begging bowl and I fully expect to have to fork out more myself although the bulk of my extra capital allocations have already revealed themselves.

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c Share Investor 2009

"Sin" stocks saintly for the Wallet

My largest holding, Sky City Entertainment [SKC.NZ] is doing well at the moment.

For the six months ending 31 December 2008 profit was tracking last years' half and I have been telling anyone who would listen at every opportunity that it is a good buy at current share price levels .

With the interim report out today comes the news that gaming revenue at Auckland Casino is up by 4% while Adelaide and Darwin are up by around 14%.

Great news considering the economic downturn.

Lion Nathan [LNN.NZ] the Australasian brewer, majority owned by Japan's Kirin is keeping its head above the foam well with drinkers of their product reaching for a cold one more often and when they do its one of those fancy "premium" beers that poofters and women drink-it works for them though.

Profit was up 4% for the 2008 full ear.

Unfortunately Lion Nathan's share price reflects their strong position in the current economy and is near its highs.

Another stock that has done well share price wise during this current downturn is Restaurant Brands [RBD.NZ] Believe it or not its stock has gone up over the overall market downturn-its big drop ironically came before the recession.

The operator of Pizza Hut, KFC and Starbucks in New Zealand has been selling its product better than it does normally-a temporary thing methinks-because of the recession so says its usually media shy CEO. Diners are apparently "trading down", every chicken has its day I guess.

These are the only 3 "sin" stocks listed on the NZX (Restaurant Brands is considered one by the food Nazis so I respectfully put it there) and they will do well in any downturn.

People like to gamble, drink, smoke, have sex and eat "junk" food and they especially like to do these things during a recession.

If you are reading this from another market consider tobacco, oil and sex related stocks if you have them listed on your local bourse.

They well might give you a lift.

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c Share Investor 2009

Reader Correspondence

I thought it was time I revisited my semi-regular email correspondent regarding his Sky City Entertainment [SKC.NZ] holding.

I am using this readers experience as an example of what real people are doing and how they are reacting to the current economic and stockmarket turmoil.

It is a good learning experience to see what others are doing and how they react in these kinds of stressful financial situations.

I had first correspondence from him early 2008 regarding his holding and then in July when he asked whether it was wise to hold this company that he bought for $4.30 and was holding now and had ... "lost a fair amount of money."

I answered that the company was solid and should perform well during an economic downturn, or words to that affect.

I didn't advise him to sell or hold (I don't really advise, I just point out what I would do and that every individual has different circumstances and therefore should probably make their own decisions) just what I would do and as most of my regular readers will know I have a reasonable holding myself and still hold at a cost of NZ$1.925 per share.

Well you might be glad to know that my correspondent has kept his shares, which I must say requires big balls in today's market, even though he expresses an element of "fear" when it comes to investing and the stockmarket-as indeed I do myself and most of us out there would also if we were honest.

He also ponders whether he should "take the plunge" and buy additional stocks considering the poor returns coming from other types of assets.

As an addition to that he asks whether I will be using the current season of dividends-around NZ$8000.00 I would expect- to reinvest back into the market.

My answer to that would be a big fat NO.

I am keeping them in anticipation of even lower share prices and will be reassessing the situation as this horrible year slowly moves on.

The last time I purchased stocks was back in July 2008 when I bought two very small holdings of a couple of retailers. My ASB Securities trading account is now firmly closed.

For now.


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c Share Investor 2009

Sky City Entertainment 2009 Interim Profit Review

One of the best results by a long shot this reporting season was the interim 2009 profit for the six months ended 31 December 2008 for Sky City Entertainment Ltd [SKC.NZ] which was revealed this morning.

While most companies that have already reported in February have recorded slumping profits, Sky City has delivered net profit of $54.8 million for the half year, compared to $55.9 million for the first half last year-that profit was before a writedown of $60 million due to the money losing cinema division.

A drop of $1.1 million during the current economic slowdown is nothing short of breathtakingly spectacular to this shareholder. (see chart)

Of particular interest to me was that this profit was produced on revenue that was dead flat but on lower tax paid and due to around $9 million in extra operating costs.

Labour and energy costs would have taken the bulk of that and the lower tax rate attributed to the lowering of corporate taxes from 33 to 30%, so it looks like much of the vaunted cost savings that were launched around 16 months ago have come to an end.

A very pleasing turn of events was the announcement of a dropping of dividends from 90% of profit payout to 60-70%.

This is something that I have advocated and wrote about just last week.

This will enable the company to pay down more debt than the $24 million that they have in the last 6 months and a wise move considering the current credit squeeze.

The focus by Nigel Morrison in his first nearly full 12 months as CEO, on keeping down costs, efficient use of capital and maximising returns on existing assets is a good move away from the previous CEO Evan Davies and his expensive expansionist ways.

Once again Sky's Cinema division is still losing money even though it has improved revenues by 15%-mainly due to more cinema screens and higher ticket prices.

Once again I must say it is a turkey and it needs its neck wrung.

As I mentioned in the Sky City Preamble published last Saturday the erratic "high rollers" revenue, was well, erratic. Down substantially this year and the win rate fell on the average for the casino, rather than last years favourable one.

Company indications for the next 6 months of operations was pretty vague, as one might expect in the current environment. Nobody is giving clear forecasts for profit or revenue and that is wise should the company disappoint the rabid market.

Sky City shares finished today even.


Sky City @ Share Investor

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2008 Sky City profit analysis
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Sky City 2008 profit preamble
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Sky City Assets: Buy, sell and hold
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Sky City Share Volumes set tongues wagging
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Related Links

	Sky City interim results for 6 months ended 31 December 2008.
	2009 Interim Result Presentation
	Media Release
	NZX Announcement
	Financial Statements
	Result Briefing Webcast

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c Share Investor 2009

Sky City Entertainment 2009 Interim Result Preamble

Sky City Entertainment [SKC.NZ] is announcing its 2009 interim result on Monday 23 February (view the webcast here 10.am NZ Time ) and I for one will be keenly interested in that result.

Sky City is the largest shareholding in the Share Investor Portfolio and indications from the company in October for first quarter revenues for 2009 were up 3% year on year, excluding its high-roller and money losing cinema divisions.

Standout performers in the first quarter were its Darwin and Queenstown properties (both up 7%), but the company’s Auckland casino, where the bulk of revenue is derived, was down 2%.

As this excerpt from a mid 2008 letter to shareholders the focus will be on cutting costs:

"Our shareholders have made it clear to us that they want us to focus on maximising the performance of the assets we operate. This is what we will be doing. as we have said previously, we expect to achieve this within an 18-month time frame. We will retain tight control over capital and not expend capital unless we are very confident of healthy returns for shareholders".

This cost cutting was first apparent in the previous interim result in Feb 2008 and continued through to the 2008 Full Year result in August of the same year.

Clearly if first quarter 2009 revenue has continued into the second quarter and cost cutting has further strengthened then Monday's result will be a good one.

The only two wildcards will be the massive economic slowdown since October and wins/losses from the high rollers, which can alter the result markedly.

For a more extended analysis of what might be see Value Cruncher for Reuters and other analyst's outlooks on revenue and profit margins for Sky City to June 2011.

Sky City shares reached near multi-year lows on Friday 20 Feb closing on overall market weakness.

Sky City Entertainment Ltd Ordinary Shares

As at 6:15 pm, 20 Feb
Sky City @ Share Investor

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Related Links

	SKYCITY will announce the 2009 Interim results on Monday 23rd February 2009. Please click here to access the media webcast link.

Sky City Financial Data

• Summary
• Charts
• Dividends
• News
• Announcements
• Price History
• Related Securities

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c Share Investor 2009