Monday, May 2, 2011

Morningstar Revalues Sky City Entertainment Group

The latest research report out by MorningStar on Sky City Entertainment Group Ltd [SKC.NZX] has put a valuation of $3.80 on the stock. I am not sure how they came to pick that figure - it seems quite arbitrary - but it has been known to the market in general that 2012 will be a record year for the company in terms of revenue and profit from the 2011 Rugby World Cup that kicks off in October and has its impact on results in the February 2012 reporting.
announcement.

Disc I own SKC shares in the Share Investor Portfolio


The Morningstar report on SKC

Valuation: $3.80
Appropriately priced, neither buy nor sell
Last updated:
02/05/11

Investment rating

SKC offers gaming services at its casinos in NZ and Australia. The entertainment complex in Auckland is the major driver of earnings accounting for 60% of its operating profit. SKC faces little competition due to NZ government's blanket ban on new casino licenses. This has allowed the company to operate at very healthy profit margins and generate abundant cash flows. An unfavorable economic environment in NZ will constrain growth but earnings will pick up next year following the Rugby World Cup in 2011. Judicious investments are being considered to lift growth in the longer term.

Event

  • SKC is currently spending NZ$40m on improving the gaming floor layout ahead of the Rugby World Cup (RWC).

  • The motive behind this spending is to capitalize on the likely rise in tourist traffic during and in the wake of the RWC.

  • In the long term, management sees huge growth opportunities for its International VIP business from Asian visitors coming to Auckland. The total size of the market in Australasia is estimated to be around A$50bn

  • The company is currently in discussions with the South Australian government to expand the property to create a much larger gaming-based integrated entertainment complex.

Impact

  • There will be a one-off spike in earnings next year on the back of the RWC. Management expects EBITDA to grow by 20-25% in the first half of next financial year, driven by 30% growth in non-gaming businesses like food & beverages and hotels.

  • Our FY12 NPAT of NZ$155m represents a growth of 20% compared to FY10.

  • Capital expenditure is likely to be around NZ$125m this year, consisting of growth capital expenditure of NZ$65m. We estimate next year’s capex to be between NZ$125-145m. We don’t see any refinancing risk.

Recommendation impact (last updated: 02/05/2011)

Our fair value of NZ$3.80 is based on 15x normalized earnings of NZ25cps.

Event analysis

Auckland: Capitalising on the RWC opportunity

SKC is currently spending NZ$40m on improving the gaming floor layout ahead of the Rugby World Cup (RWC). This investment also includes redoing the federal street precinct by adding more restaurants and bars. The motive behind this spending is to capitalize on the likely rise in tourist traffic during and in the wake of the RWC.

The refurbishment involves extending the Pacific Room, renovating the Platinum Room and creating a Diamond Room by relocating the Fortuna Restaurant on level 2. The Platinum Room will have 270 machines and the Diamond facility will house 250 machines. The new and improved facilities are expected to grow revenues for the Platinum as well as Diamond tiers.

In the long term, management sees huge growth opportunities for its International VIP business from Asian visitors coming to Auckland. There is only one VIP salon at the moment. SKC wants to grow this to four salons over the next few months. Management is confident that with the right product, higher gaming capacity and improved service it will be able to gain market share from some of its competitors across the Tasman. The total size of the market in Australasia is estimated to be around A$50bn. In the first half of the current fiscal year, International VIP turnover nearly doubled over the prior period. We expect revenues to reach NZ$2.8bn this year, which compares to NZ$1.8bn in FY10. Management’s goal is to lift turnover to NZ$4bn over the next 12-18 months.

National Convention Centre: Will SKC end up funding it?

The government wants to build a National Convention Centre in Auckland and SKC is keen to participate in the venture. The idea is to have the convention centre next to the hotel and casino, connected by an over bridge. SKC envisages a significant increase in foot traffic to its casino and hotel properties. However, the funding model is still up in the air. The government could fund the project but given its fragile balance sheet, especially after the Christchurch earthquake, it might choose to tap private capital instead. The total cost of the project is estimated to be around NZ$300m. SKC sees a great opportunity but it is unclear whether it can make adequate returns under the current regulatory regime. Time will tell whether SKC and the government can thrash out a deal. We will keep a close eye on developments.

Adelaide: Good potential but constrained by regulatory framework

Adelaide is hamstrung by a very restrictive regulatory regime, high tax rates and a lack of parking and entertainment facilities in and around the casino. Consequently, the casino has largely underperformed its other Australasian peers in terms of visitors, revenues and EBITDA margin. The casino currently generates around A$30bn in EBITDA every year, but has the potential to generate A$80bn in EBITDA with a more friendly regulatory framework that its peers enjoy.

The company is currently in discussions with the South Australian government to expand the property to create a much larger gaming-based integrated entertainment complex. It wants to do this alongside the government’s proposed Riverbank Masterplan development. The plan envisages a significant increase in car parks, a material increase in machines and tables, construction of a hotel, and a range of restaurants and bars. The cost of the project is estimated to be approximately A$250m. SKC says it will commit to the project only if it is able to reach an agreement with the government and is able to earn an adequate return on capital.

Rugby World Cup: a one-off bonanza

There will be a one-off spike in earnings next year on the back of the RWC. Management expects EBITDA to grow by 20-25% in the first half of next financial year, driven by 30% growth in non-gaming businesses like food & beverages and hotels. Hotel occupancy is likely to be at a record high. The gaming business is expected to increase by 13% during the same period. Our FY12 NPAT forecast of NZ$155m is predicated on these assumptions. Auckland constitutes around 60-65% of group EBITDA. Other NZ properties at Hamilton and Queenstown are also expected to be up significantly. Capital expenditure is likely to be around NZ$125m this year, consisting of growth capital expenditure of NZ$65m. We estimate next year’s capex to be between NZ$125-145m. Our fair value of NZ$3.80 is based on 15x normalised earnings of NZ25cps.


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


Guest Post - Michele Hewitson Interview: Nigel Morrison
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Sky City Entertainment Group Ltd: Download full Company analysis
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Discuss SKC @ Share Investor Forum
Download SKC Company Reports

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Share Investor's Letter to BioVittoria

Just a note to the owners of BioVittoria, the New Zealand natural-sweetener company that was forced to abort an attempt at listing on the NZX in 2009 due to a lack of market support.

Although I have heard of your company, your attempt to raise funds passed me by because I wasn't really informed that this was happening. Brokers in the past have emailed and called me about every other dog company under the sun - not that there have been many attempted listings since 2009 or since anytime really - but yours sadly must have gone into the spam box or the broker could see how good your company was and wanted to do his own deal.

BioVittoria folks, appears to be at the cutting edge of the "alternative" sweetener market occupied by Aspartame, otherwise known as Nutrasweet , Sucralose and a few others. These alternative sweeteners are in thousands of food products, most know that the major soda makers have these products in their brands like Coca Cola Zero, Pepsi Max etc and they are also in Wrigley products like Extra chewing gum but most of us probably dont know that alot of our everyday consumer products contain a sugar substitute.

In some of these products though, notably the soda drinks, the consumer can tell that what they are eating or drinking doesn't taste like sugar at all and in fact maybe harmful to ones health if used long-term. This is where BioVittoria comes in, not only is their product Fruit-Sweetness™ it a "Natural Sweetener" the makers claim it doesn't have any health side affects, it is calorie free and tastes great.

That and the Food and Drug Administration (FDA) has certified that its Fruit-Sweetness branded monk fruit concentrate is GRAS (Generally Recognized As Safe). The kicker is that a 12% portion of BioVittoria has just been sold to food ingredients company Tate & Lyle and T &L now has a 5 year agreement to dsitribute Fruit-Sweetness™.

Now this is going to allow BioVittoria to compete in the US$50-billion ($62.5b) a year global sweetener market.

"This agreement opens doors to some of the world's largest food and beverage companies, giving a significant boost to our expansion into international markets.'' BioVittoria CEO David Thorrold

Now I don't know about you but I would want to invest in any company that has such a significant product that appears to have no comparative competition (yet) in a fast growing market worth 50 billion bucks, especially at the very beginning.

So please take note David Thorrold and your fellow directors I am very interested in investing in your company should you want the try the NZX again and I am sure lots of my readers would be as well.

Lord knows we need some good companies to enter the NZX IPO market before it disappears completely - only half joking.


Related Links

BioVittoria.com Monkfruit.org

New Zealand, Asia Pacific
Phone: 64 7 857 0521
info@biovittoria.com
srl@biovittoria.com

China
Phone: 86 773 355 0105
garth@biovittoria.com

USA
Phone: 1 847 226 3467
paul_paslaski@biovittoria.com


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c Share Investor 2011

Share Investor Portfolio: Value @ 29 April 2011

The Share Investor Portfolio was significantly up in the last week of April. The portfolio was up by 2.02% or $5479.61 on the April 22 update . For the first 16 weeks of 2011 the portfolio has increased by 12.04 % or $30866.98 . This weeks rise was due, primarily, to a 10c rise in SKC, and WHS, an 8c rise in FRE and smaller rises across the board. Most of the remaining stocks were up marginally.

The total of unspent dividends and interest in the bank from the 2010 - 2011 earnings years is $23479.21 at close of reporting season for 2010 and near the end of the 2011 year. There are also approx $50000.00 in tax credits earned from the portfolio since it began in late 2002.

The Share Investor Portfolio has increased in value by 16.83% or $44624.23 since I began tracking it for this blog on October 11 2010.


Share Investor Portfolio as at 17:30:00, Friday 29 April, 2011 (NZT)


Stock
Quantity
Cost price
Total cost
Market price
Market value
Change
%
AIA

2,000 $1.700 $3,400.00 $2.220 $4,440.00 $1,040.00 30.59%
AIA

2,000 $1.510 $3,020.00 $2.220 $4,440.00 $1,420.00 47.02%
AIA

558 $0.000 $0.00 $2.220 $1,238.76 $1,238.76
AIA

754 $2.150 $1,621.10 $2.220 $1,673.88 $52.78 3.26%
ASBPB

3,027 $0.000 $0.00 $0.660 $1,997.82 $1,997.82
ASBPB

6,973 $1.000 $6,973.00 $0.660 $4,602.18 $2,370.82 34.00%
BGR

619 $0.000 $0.00 $1.430 $885.17 $885.17
BGR

2,381 $0.990 $2,357.19 $1.430 $3,404.83 $1,047.64 44.44%
FBU

284 $0.000 $0.00 $9.190 $2,609.96 $2,609.96
FBU

830 $9.750 $8,092.50 $9.190 $7,627.70 $464.80 5.74%
FPH

3,000 $2.350 $7,050.00 $3.090 $9,270.00 $2,220.00 31.49%
FPH

541 $0.000 $0.00 $3.090 $1,671.69 $1,671.69
FPH

1,459 $3.720 $5,427.48 $3.090 $4,508.31 $919.17 16.94%
FRE

2,054 $0.000 $0.00 $3.440 $7,065.76 $7,065.76
FRE

6,577 $3.630 $23,874.51 $3.440 $22,624.88 $1,249.63 5.23%
GFF

586 $0.000 $0.00 $1.480 $867.28 $867.28
GFF

1,414 $2.330 $3,294.62 $1.480 $2,092.72 $1,201.90 36.48%
HLG

299 $0.000 $0.00 $3.950 $1,181.05 $1,181.05
HLG

701 $2.530 $1,773.53 $3.950 $2,768.95 $995.42 56.13%
KIP

190 $0.000 $0.00 $1.030 $195.70 $195.70
KIP

810 $1.480 $1,198.80 $1.030 $834.30 $364.50 30.41%
MFT

1,000 $7.960 $7,960.00 $9.280 $9,280.00 $1,320.00 16.58%
MFT

1,838 $8.000 $14,704.00 $9.280 $17,056.64 $2,352.64 16.00%
MFT

657 $0.000 $0.00 $9.280 $6,096.96 $6,096.96
MFT

1,505 $4.200 $6,321.00 $9.280 $13,966.40 $7,645.40 120.95%
MHI

1,646 $0.860 $1,415.56 $0.910 $1,497.86 $82.30 5.81%
MHI

7,000 $0.630 $4,410.00 $0.910 $6,370.00 $1,960.00 44.44%
MHI

494 $1.050 $518.70 $0.910 $449.54 $69.16 13.33%
MHI

860 $0.000 $0.00 $0.910 $782.60 $782.60
PPG

31 $0.000 $0.00 $0.260 $8.06 $8.06
PPG

1,500 $0.440 $660.00 $0.260 $390.00 $270.00 40.91%
PPG

1,004 $0.800 $803.20 $0.260 $261.04 $542.16 67.50%
PPL

1,000 $3.090 $3,090.00 $1.280 $1,280.00 $1,810.00 58.58%
PPL

1,000 $2.870 $2,870.00 $1.280 $1,280.00 $1,590.00 55.40%
PPL

939 $4.200 $3,943.80 $1.280 $1,201.92 $2,741.88 69.52%
PPL

975 $0.000 $0.00 $1.280 $1,248.00 $1,248.00
PPL

1,086 $1.530 $1,661.58 $1.280 $1,390.08 $271.50 16.34%
RYM

459 $0.000 $0.00 $2.540 $1,165.86 $1,165.86
RYM

4,586 $1.970 $9,034.42 $2.540 $11,648.44 $2,614.02 28.93%
SKC

5,750 $7.430 $42,722.50 $3.560 $20,470.00 $22,252.50 52.09%
SKC

1,000 $7.600 $7,600.00 $3.560 $3,560.00 $4,040.00 53.16%
SKC

2,750 $7.700 $21,175.00 $3.560 $9,790.00 $11,385.00 53.77%
SKC

1,431 $8.750 $12,521.25 $3.560 $5,094.36 $7,426.89 59.31%
SKC

272 $4.720 $1,283.84 $3.560 $968.32 $315.52 24.58%
SKC

25,712 $0.000 $0.00 $3.560 $91,534.72 $91,534.72
STU

78 $0.000 $0.00 $2.700 $210.60 $210.60
STU

303 $4.740 $1,436.22 $2.700 $818.10 $618.12 43.04%
WHS

4,500 $3.730 $16,785.00 $3.650 $16,425.00 $360.00 2.14%
WHS

6,979 $6.000 $41,874.00 $3.650 $25,473.35 $16,400.65 39.17%
WHS

15 $3.710 $55.65 $3.650 $54.75 $0.90 1.62%
WHS

3,506 $0.000 $0.00 $3.650 $12,796.90 $12,796.90

28.66%


Total cost Market value Change

$270,928.45 $348,570.44 $77,641.99


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c Share Investor 2011