Sky City Profit Upgrade: Always on the Cards

If you have been reading this blog for the last two years you will know that I have a large shareholding in Sky City Entertainment Group [SKC.NZ]. You will also know that I have banged on about owning this stock until my fingers have bled, and you will then know the reasons why I like owning shares in this company.

Well, news out today that Sky City management have upgraded Fully Year profit in the 12 months to June 30 2009 from a $99-106 million range to a range of $113 - $116 million, reinforce my obsession. Just two weeks ago I gave a nod and a wink and picked the company as my Stock of the Week. That was when the stock price was at $2.58.

At the time of writing the stock is up 21 cents to $3.07 on exceptional volume.

Just yesterday I wrote that trading in Sky City shares last Friday were quite large (around NZ $18 million) and the movement in share price by 10c that same day was an indicator that insiders knew about material information, Thursday night at the latest -the share price had steadily moved upwards last week after being in the doldrums for weeks.

More insider trading? Yes but lets leave that to another day.

I have also indicated many times in the last year that this company will do well during a recession and one simply shouldn't sell because the share price is tanking, in fact you should really have been buying if this stock suits your investment profile.

The signs have been there of a turnaround in the company, Nigel Morrison has been savage at cutting costs, including paying down debt with a slightly dodgy capital raising a few months ago and his experience and history at casino turnarounds has provided a renewed revenue bounce at the company's Adelaide casino.

The Auckland casino has finally been freed of construction and revamps, with more revenue coming from gaming machines and food and beverage sales and even the lackluster cinema business is providing more income, even though I am dubious of the sustainability of that.

As I have also mentioned before the Darwin Casino continues to be a star in the Sky City crown, with good revenue increases likely to be revealed in the profit announcement to be made Wednesday August 26 and future development there will pull in more gaming income.

In recessions, casinos that Sky City operate do well. They differ from their big flashy and unprofitable Las Vegas brothers who rely much more on overseas customers for gaming income, where the vast bulk of profit for Sky City's money spinners comes from the local population, well over 70% I believe.

With more Kiwis staying home, especially at its Auckland complex, where a large number of its customers are recent immigrants from Asia, revenue there is bound to be well up.

I look forward to congradulations from my readers for indicating to them how much I have liked this stock over the years with a wink and a nod as subtle as a sledgehammer in the head.

Tell me you bought while the stock was low.


Sky City Entertainment Group @ Share Investor

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Transpacific Industrie's Capital Raising is Trash

I feel for Transpacific Industries [TPI] NZ | AU shareholders. I say this because shareholders like myself benefited from their Executive Director and Chairman, Terry Peabody's generosity when he shelled out over NZ $800 million to buy Waste Management NZ in 2006.

Some say he overpaid, I say the asset was a stunner and I got shafted long-term but nevertheless I got a 50% return on my investment for a year and the money came from debt Peabody was able to raise from idiotic investment bankers who took a percentage cut for arranging such loans for Peabody to go mad with.

I really have TPI shareholder money in my back pocket, thanks for that, but the borrowing of the last few years had its wrap up of sorts today where the company is trying to ironically raise about $AU800 million to fend off bankers (ahh there they are again to collect) and eventual liquidation.

They have managed to raise around AU $620 million so far from institutions and a cornerstone shareholder, Warburg Pincus (another investment banker/private equity player) and will ask for the remaining balance from those poor old suffering shareholders at the princely sum of AU$1.20 per share.

If the institutional capital raising is anything to go by the interest in pouring more money into this company is low. It only just reached its minimum target.

My message to those shareholders is, don't do it!

The architect of the company failure is still there at the head of the business, it is unbelievable that he hasnt been pushed out or had the decency to walk the plank, but Terry Peabody is an arrogant man and he will not admit that he has done much wrong. He has destroyed around AU$ 3 billion in capital in the business that he manages and an arrogant man doesn't change his ways easily.

The cornerstone shareholder should reign him in though.

It seems to me though that the cornerstone shareholder,Warburg Pinkus, who will hold 20% of the company or more once the capital restructure is finalised, and that should be in early September, might want to extract as much value from their investment at the expense of minority shareholders and Peabody, who will also have a large stake, will want to continue with the staus quo.

Cut your losses TPI Holders, it ain't worth it chasing good money after bad.

There is of course short money to be made here.

Just a heads up for New Zealand investors. It seems to me that Transpacific's best assets still lay in its New Zealand operations. Waste Management and parts of Envirowaste and other companies that TPI run here are virtual monopolies, making good money and the fact that an investment banking organisation/private equity company has a large stake in TPI could mean a sell off of some of those assets in the future.

Slightly more than a stab in the dark from me, but nevertheless we could get it back on our NZX one day.

Just though a good rumour was warranted.

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Stock of the Week: Fisher & Paykel Healthcare

In this Stock of the Week I am going to look at Fisher & Paykel Healthcare [FPH.NZ] a long term favourite of mine.

While the stock has been cheaper over the last year (see chart above) and it has been close to a high of 5 bucks over the last 2, it is still more than 10% off its recent highs and that is my overriding reason for including it in this series.

That and the following important positive points:

1. The company has an enviable history of good revenue growth and profit

2. Looking into the future, its cutting edge technology and high R & D spending make for continuation of point number one.

3. Profit and sales have been recession-proof in the past and that is evidenced in their last profit result.

Even though the stock price is just over 10% off a 6 month high of NZ$3.46, it has found a comfortable niche in share price between $2.80 and $3.20 for the last year, so there is room in that 40c range for short termers to trade and long termers to pick up more shares if the stock moves to the bottom of that range.

I managed to add 3000 more FPH to the Share Investor Portfolio on June 16 2008 for $2.35.

Please be aware though that the stock price is particularly sensitive to currency fluctuations, with any upwards pressure on the Kiwi dollar having a negative impact on share price and vice versa. If the NZ dollar trades out of the 60c range in either direction then you are likely to find opportunities from either side of the share price equation.

It is a quality stock with something for everyone.

Good luck!


Disclosure I have FPH shares in the Share Investor Portfolio


Stock of the Week Series

Xero Ltd
Auckland International Airport
Sky City Entertainment Group
Burger Fuel Worldwide
Michael Hill International
Contact Energy Ltd
The Warehouse Group
Fisher & Paykel Appliances


Fisher & Paykel Healthcare @ Share Investor

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August - October reporting season should sort out fact from market fiction

The looming New Zealand reporting season that rolls out at the beginning of August is going to be a very good differentiator of fact from fiction.

Has our stockmarket got it right with its wild mood swings and huge markdowns in stock prices for most of our listed companies or has it gone way off track as usual and over reacted to the incessant bad news about the economy and some companies that have had particularly bad recent results and a large number that have had profit warnings?

I tend to err on the side of over reaction.

One stock in the Share Investor Portfolio that has been particularly hard hit over the last few months in terms of share price, Sky City Entertainment Group [SKC.NZ], didn't really participate in the recent upswing in stock prices across the board but its profit is going to be inline with last years result and its market update earlier this year - as it has been for the last 2-3 years when its share price was more than double its current levels. Go figure. Its share price was up 10c this last Friday at market close, on very large turnover, indicating that the result coming out late in August might be even better than indicated.

As investors and market watchers, we already know which companies are likely to underwhelm. The retail market sucks a kumera ; The Warehouse Group [WHS.NZ] , Pumpkin Patch Ltd [PPL.NZ] and Hallenstein Glasson [HLG.NZ] are going to disappoint the market, and that is clear if you just walk around the malls and ask your friends what they have been buying lately, but their respective stock prices have either been steady or up slightly in the last few months. Companies such as Contact Energy Ltd [CEN.NZ] and Goodman Fielder[GFF.NZ] have forecast lower profit this reporting season but their share prices have maintained relative value. Most export related businesses are suffering except for a notable one of two which are doing better than ever -like my own Fisher & Paykel Healthcare [FPH.NZ]. In comparison to Sky City's good February results, this shows little good judgment when it comes to picking companies with good medium term future profits when you look at what value Mr Market puts on them.

A stock that has simply rocketed in share price over the last few months is Restaurant Brands Ltd [RBD.NZ]. That has been an over reaction to a claw back to profit for the fast food operator where its share price has almost doubled from its early 2009 lows in the 50 - 60c range. Clearly this sort of stock movement is a major departure of fact from reality - its profit is no higher than it was 10 years ago and forecasts show only a small rise in profit from current levels, but the market has forgotten the poor financial history of this company and given the stock price a Viagra like status when it comes to valuing what the company is worth.

Telecom New Zealand's [TEL.NZ] stock price seems to have accelerated in share price of late but all indications are that profit is going to be well down on last year and a sense of uncertainly has enveloped company operations because of regulatory and economic restraints and the expense of rolling out their new XT mobile service. Will the market react in a realistic way when the bad bottom line figures finally surface in their accounts in August?

Ahh but you forget about Telecom's big dividend Darren! Attractive to international market watchers and Kiwis alike. Yeah OK, but how long can that last.

Reporting season is always a good way to sort the wheat from the chaff- if you can understand most of the gobbledygook in company reports - and this coming reporting season will be more relevant to that mantra than any other year in recent memory simply because of the economic uncertainty that currently prevails but the time for some caution should come now, when deciding to buy stocks. It looks to me that some are piling into stocks simply because they see stock prices rising and that isn't a clever way to buy, especially in a beaten down market.

I have been buying recently but not all stocks should be bought because they appear to be "on sale". I bought for my own reasons because I consider them cheap and good companies.

I bought more Michael Hill International [MHI.NZ] and Auckland International Airport [AIA.NZ] recently because I like the good management of the former and the monopoly status of the latter.

The stock prices of these two are interesting. Michael Hill's is probably trading at fair value given the dire nature of the retail industry, especially for discretionary stuff like jewelery (I saw nobody in my Albany MH on an otherwise busy retail day last week and they were offering free coffee) but Airport shares are trading at a heavy discount to value given that looming profit will only be slightly down from last year. The yang to that particular ying is that less than two years ago the Canadians and the Arabs offered over NZ$3.65 per share to buy the company, probably then overvaluing the company based on similar profits to this years one.

In my not so humble opinion Auckland International Airport is worth way more than $3.65 per share in the long term, (5 years plus) see monopoly status again for an explanation of that exuberant statement.

Yes, it is a good time to buy stocks because company share prices are on sale but fundamentals still do apply and it is worth looking even closer today than usual because of the x factor of the economic downturn. The reporting season will tell us if we have been right over the last 6 months, at least in the short to medium term, rather than betting on market whims.

I have only a short market experience (around 12 years) but now more than ever the disconnect between the current profit, future prospects and health of our NZX listed companies and its sharemarket value is more pronounced - and that occurred when the market over accelerated in the earlier part of this century as well. Some companies are being way under valued and vice versa.

I guess that is what makes this game interesting, but the rules will change as the profit season reveals its hidden cards.

Disclosure I own SKC, FPH, HLG, AIA, MHI, WHS, PPL, & GFF shares.

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