Sky City Entertainment Group Ltd: Convention Centre may mean significant gaming expansion

Artists impression of the Sky City National Convention Centre

News out during the last few weeks that Sky City Entertainment Group Ltd [SKC.NZX] may have negotiated a large increase in the number of gaming machines, tables and other concessions in return for building and funding a National Convention Centre for New Zealand and allowing it to significantly expand its revenues at the Auckland casino is clearly great news for investors. New Zealanders are also set to gain a valuable new addition to the landscape in terms of returns for surrounding businesses and opportunities for the country as a whole.

Lets have a look at how great things might get for us long suffering shareholders.

First of all a couple of negatives. $350 million in shareholder funding will be needed to build the convention centre and ongoing costs will be significant. Convention centres, as a rule, do not make money on their own, they are generally used to bring in foot traffic to other parts of a business or town to push spending in those areas.

This is where the positives for the casino may bear some fruit.

At present the company is restricted by law as to expansion of its gaming business in Auckland and indeed the rest of New Zealand so it has thus far been lowering business costs, debt levels and building attractions like a dozen more eateries and other peripheral gaming stuff to grow revenue and profit and that has been very successful under CEO Nigel Morrison.

Businesses all need to continue to grow though and with the company asking the National Government to allow them to increase the number of gaming machines by up to 1000 and increase the number of table games even agreement for a 25% increase in gaming will clearly be significant for the Auckland site and for shareholders as the vast bulk of group revenue comes from this one site.

Any increase in gaming machines is not going to be politically acceptable to the left, so SKC management are going to find any increase politically tough to push through but I am confident there will be some increase in the levels of gaming at Sky City Auckland.

While building and funding a massive new building at a time of global financial uncertainty is a huge risk. The risk for shareholders is worth taking though given the stagnant nature of revenues at Auckland. Extra foot traffic would boost gaming revenues at the site regardless of a boost in machine numbers so lets hope management have got their modelling right when they factor in the cost of the capital expense, ongoing running costs and the level of extra gaming there has to be to get an acceptable return for shareholders.


Sky City Convention Centre @ Share Investor

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Sky City Entertainment Group @ Share Investor

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Steve Jobs Biography - By Walter Isaacson

c Share Investor 2012

Facebook IPO: Should you "Like" it?

Just pondering the pandemonium over the highly anticipated Facebook Inc [FB.NASDAQ] IPO. (download the prospectus here)

There has been so much hype and interest whipped up by general mainstream media, online media and Facebook itself it is hard to know just what is hype and what is reality. Even U2's Bono is in on the action !!!! Cue bizarre looking smoky shades.

Well, Facebook is expected to file a preliminary prospectus for an IPO today and prospective investors will find out whether the hype matches reality and the value that Mark Zukerberg and his mates at FB central have put on the popular social networking site.

I don't have to tell you the littered corpses of hundreds of tech companies that were going to be "the next big thing" that have gone before Facebook and only just a handful of them still remain.

One of course is Google Inc [GOOG.NASDAQ]which debuted in 2004 and has been a moderate success since. Google though, had and still has strong revenue streams and their market share is such that they dominate just about every business sector that they operate in. They are pretty much a dominant monopoly cash cow.

Facebook, when listed, would, in actual fact, have to go after Google advertising revenue - and win - to have a decent shot at long-term success.

Both Facebook and Google operate businesses in the fast moving, ever changing technology sector where Google has thus far cemented their place on the internet as a business but Facebook, while dominant in the social networking arena, could be subject at any time to a new technology start-up that removes that dominance in a heartbeat. Anyone remember MySpace?

Facebook may well be one of the notable exceptions to the tech disasters the markets have seen since the late 1990s but it would be one of the rarities if it did.

By all accounts, market watchers expect the company to be way overvalued and that really is a symptom of the hype surrounding the IPO and the expended demand as a result of that hype rather than the fact it is a good business worth investing in. Overvaluing an IPO of a company with an unproven business model seems to me to be a recipe for disaster, for initial investors in the public pool anyway.

In a once over lightly of facts and figures leaked from Facebook back in 2009 it showed revenue of US$ $1.24 billion and net income of $355 million for 9 months in the 2009 financial year. It is unclear whether this revenue has increased over the years or how much of that income has been spent on keeping Facebook going and growing but the IPO could be one of those nasty grabs for cash that happened during the dotcom frenzy of the 90s and may need to happen again if FB is to continue to grow.

The big winners are going to be Mark Zukerberg and the rest of the early investors in Facebook who will be billionaires or multi millionaires when the company lists and early participants in the IPO.

I am clearly very cautious about the Facebook IPO and will not press the "Like" button just yet.

My comments above will suffice.

Related

Download Facebook SEC Filing - Prospectus
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c Share Investor 2012

Share Investor Portfolio 2: Value @ 31 January 2012

The Share Investor 2 Portfolio is a separate portfolio apart from the original Share Investor Portfolio and contains just one share, Contact Energy Ltd [CEN.NZX]. It will only have this one share in it and has a far shorter time frame than the original long-term portfolio that I started 8 years ago.

The portfolio was started July 7 with 9000 shares purchased at $5.34 at a total cost of $48,060.00 and $144.18 in brokerage.

After 7 months of trading the portfolio was down sharply in the first month of January 2012 by $7830.00 or 16.53% - its biggest ever fall - on the December 5 update to be worth a total of $43020.00

The portfolio is down by 8.43% since tracking began on July 7 2011.

Share Investor 2 Portfolio as at 17:30:00, Tuesday 31 January, 2012 (NZDT)
 

Stock		Quantity	Cost price	Total cost	Market price	Market value	Change	%
	CEN	202	$0.000	$0.00	$4.780	$965.56	$965.56
	CEN	8,798	$5.340	$46,981.32	$4.780	$42,054.44	$4,926.88	10.49%
8.43%   Total cost   Market value      Change $46,981.32    $43,020.00 $-3,961.32

Share Investor Portfolio 2

Share Investor Portfolio 2: Value @ 5 December 2011
Share Investor Portfolio 2: Value @ 28 November 2011
Share Investor Portfolio 2: Value @ 18 November 2011
Share Investor Portfolio 2: Value @ 11 November 2011
Share Investor Portfolio 2: Value @ 4 November 2011

See all previous updates here - Scroll down to bottom of post

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The Market says Rob Fyfe has failed

So the departing CEO of Air New Zealand Ltd [AIR.NZX] is leaving his post at the end of 2012 and being lauded by some as a  "rockstar" CEO and the saviour of an airline.

According to the market though he is not.

If we look at the 7 year chart below - the length of time Mr Fyfe has been with AIR NZ -.we can see that the share price has kamakazied to half the value it was when he took over in 2005.

7 Year AIR Chart

Not only that, the share price is an all-time low (see 10 year AIR chart below) since the company was injected with a billion taxpayer dollars in 2002. Hardly the stuff of first-class lay back and champagne flutes.

10 Year AIR Chart

Over its 10 year listing Air New Zealand has had negative returns for investors and the share price was markedly better under Sir Ralph Norris who managed the current structure of the company well through its formative years in the early 2000s.

I know airlines are notoriously difficult to run and it is hard for them to make money but the plaudits and pats on the back for him now are misplaced at best and arse kissing at worst.


AIR @ Share Investor

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Reality Needs to Bite
Air New Zealand wants another taxpayer bailout

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