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

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c Share Investor 2010

2010 Budget a Good Start

Thurday's 2010 New Zealand Budget was probably one of the best I have seen in my 44 years but it lacked the will to live within a budget.

Lets gripe first.

There were no cut-backs in Government spending, in fact spending was increased by $1.8 billion, so borrowing is the name of the game for sometime yet.

Little incentive for investors to save.

Welfare needed to be cut and the Emissions Trading Scam tax dumped along with some superfluous Government departments like Wimins affairs and the Ministry for "climate change" but I guess there is time for that at a latter stage.

The tax cuts, while good, were not sharp enough or bold enough to change the direction of the economy quick enough.

What I like.

The tax cuts gave a good incentive for all to work harder and were especially generous to low income earners with good cuts in the lower income brackets. A flat overall tax of 20% would have given the economy a good kick-start , with a tax free threshold of $10,000 for all earners.

The cut in company tax from 30 to 28%, while not bold enough (a cut to 25% reducing to 20% in 2011 would have been wiser) will be good for private and listed companies and will be a small incentive to those buying listed stocks.

A good budget tax wise but not enough restraint.

Related

Budget 2010 - stuff.co.nz
Budget 2010 - nzherald.co.nz

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c Share Investor 2010

Telecom NZ Share Price has "Jumped the Shark"

I wrote about Telecom NZ [TEL.NZ] share price back in March and at that stage, March 17, the share price had reached $2.15 at close of trading after touching $2.13. At that time an all-time low for the company since it listed back in 1992.

Well, today, thanks to more global economic uncertainty because of free spending debt laden Greeks and other PIIIGS the TEL share price has dipped below the magical 2 buck mark for the first time and it is all on for young and old. It has now "jumped the shark".

Like most other NZX traded stocks the Telecom NZ share price has traded down (see TEL comparison with the overall NZX on chart above) on very large volume today but the company still has other negative factors going against it like more money to be spent on capital infrastructure, more competition and more problems delivering adequate service in all its areas of business; Telecom landlines, Mobile, Internet and infrastructure delivery.

Below 2 bucks is an important psychological level for the share price and it is anyones guess where that level will reach but I am picking it is all downhill from here, even if global markets"recover" from the slippery Greeks.

Beware the shark.



Telecom NZ is currently trading at $2 even on nearly $25 million traded.


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c Share Investor 2010

Help me please I am a Poor Stockbroker

There is little or no coverage of smaller stocks listed on the NZX and that is a shame because some of them are better in quality than a number of the so-called "Blue Chips". Telecom NZ [TEL.NZ] being a glaring example of a big stock with little reason to cover but the broker boys all have an opinion on it.

Less coverage of smaller, quality stocks, leads to less investment in those companies through the stockmarket and investment only by those willing to do their own research - which of course aint such a bad thing.

Much of our stockbroker analysing isn't worth the paper it is written or file it is saved in. You simply cant trust it because of the financial conflicts brokers have with the companies they are writing about and rarely is there any disclosure of conflict. The quality of the researchers and their methods often run in a contrary nature to basic investing tenants, like a long-term view to investing rather than research based on the day to day fluctuations of the share price of a company.

It seems though that the bureaucrats have been "working on it" -we are the Government and we are here to help you - and it looks on first glance that there could be a taxpayer handout to some of these broker cowboys so they can do the research for us on these aforementioned smaller companies:

"Work is under way at Treasury on an "analyst research scheme" proposal which would ensure smaller stocks ignored by the broking industry would get coverage.

The scheme was suggested by the Capital Market Development Taskforce (CMDT) in December, which invited the NZX, Treasury and the Ministry of Economic Development to consider the idea...

A Treasury spokesman said questions such as who would pay for such a scheme were still being worked on." Stuff.co.nz

So the brokers will cover those smaller stocks but only if someone else is paying for it?

Who gets the revenue from the interest gained from publishing these company reports? Would it be brokers themselves? Surely NO!!!

Well the CMDT, all who have skin in the game, seem to think that welfare for brokers might just be the answer to the "problem" of small company coverage.

Since when is the answer to any "problem" Government intervention, with taxpayer dosh swilling around the trough ready for brokers to start taking an interest in those lonely small listed businesses?

Anything Government gets involved in turns into a mess and this hair-brained idea is no different. It is bound to be wrapped in layers of red tape with the very opposite objective being the outcome.

Let the market decide aye boys, until the taxpayer intervenes with a reason for you to move.

Nice work if you can get it.


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c Share Investor 2010