Forum Archive Index - February 2002

["Phil Boeyen" <pboeyen@sharechat.co.nz>]

I was down in Queenstown last week and had a very quick look at SKC's
venture down there.  To be honest I kept looking around for the casino even
when I was standing in the middle of it - I thought I had just wandered into
a bar with a few pokies.

I was also speaking to some people from Adelaide recently who think SKC have
made the casino there into an extremely tacky proposition.  For those who
don't know the history of the building it is in the old Railway Station
and - when first set up - was designed very tastefully and in keeping with
the architecture of the period.

What does this all mean?  Probably not a lot - in the long run its the coins
clinking into the machines that will decide the future of these ventures.
Still, I have the feeling it's going to take some time for these investments
to bear fruit.  Like Snoopy, I will be interested to see the next figures
from the Adelaide venture in particular.  Its success (or not) will be a
test of the ability of SKC to operate outside their Auckland comfort zone.

There's also the Hamilton casino to consider I suppose, although I wonder
how much it will just eat into the Auckland operation's customer base.

Phil
(hold skc)

----- Original Message -----
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Tuesday, February 12, 2002 12:04 PM
Subject: Re: [sharechat] skc


> >
> >
> >What do people think of skc
> >
> >
> It's good
> >
> >
> >& why is it going down?
> >
> >
> I suspect the downturn in Sky City price is a reaction to the
> uncertain debt position of its newly acquired subsidiary 'Force
> Corporation', and the effect that any increased debt might have on
> its parent SKC.
>
> Force is currently undertaking a $NZ31million dollar capital raising.
>  The expectation is that the other shareholders will not take up
> their entitlement to this rights issue, and Sky City will end up with
> an up to 95% stake in the company as a result.   Let's say that Sky
> City ends up with 100% of Force as it now is.  (that will make the
> 'what if' scenario I will paint below relatively simple).
>
> If we turn to page 39 of the latest SKC annual report, the balance
> sheet, we can see that there are total liabilities of $NZ563m listed,
> and this includes around $NZ45m of Force loans consolidated into the
> SKC books (SKC being roughly a 50% controlling shareholder).
>
> In the half year since these figures were tabled there has been a
> significant deterioration in the financial position of Force which
> has resulted in a further $NZ10m in debt yet to formally appear of
> the SKC books.(1)  You can get this from the Force half year profit
> announcement as posted to the 'sharechat' website.
>
> If SKC do end up with full ownership of Force, this will require them
> to consolidate a further $NZ55m of debt into their balance sheet (2).
>
> Furthermore SKC will have to fully fund the $NZ31m convertible note
> issue (3), and my reading of the situation is that this is in
> addition to the direct capital advance of $US4.25m ($NZ10m) (4) that
> they have already had to inject to sort out the Force debt problems.
> It has been flagged that under the new loan deal, a potential
> liability for a further $US4m ($NZ10m) bailout exists. (5).
>
> If we add the total  affects (1-5) of our worst case scenario
> together, we get an increase of $NZ116m in debt, all to be tacked
> onto the SKC balance sheet liabilities.   All other things being
> equal, this will create a balance sheet with $NZ391m in equity
> compared with $NZ563m plus $NZ116m which equals $NZ679m in debt. This
> gives a debt ratio of 679/(679+391) which equals 63%.  This is high
> by some standards (some people use a rule of thumb of 50% for maximum
> desirable debt)!  Or is it?
>
> Last year, when the SKC share price climbed to its greatest heights,
> the debt ratio was 572/(572+227)= 72%.  So by my reckoning the debt
> now is less than it was then, in relative terms.
>
> What has changed is the ability to service that debt.  If we assume a
> flat profit year of $NZ70.1m (due to the other earners apart from the
> Auckland heartland still being brought up to speed) this means it
> will now take SKC 9.7 years to pay down their debt completely, should
> they choose to do so.   This is a deterioration from last years figure
> of 8.2 years, but not a grave deterioration.  9.7 years, while
> perhaps a bit higher than desirable on a long term basis, is not out
> of line IMHO.   Also remember that the SKC board is in this position
> by choice.  They did have the option of letting Force go bankrupt if
> they felt this new increased debt position was unmanageable.
>
> So to summarize...
>
> There are some investors out there who see the debt of SKC going up
> to what might be for some less well managed companies concerning
> levels.  They are selling out of SKC while there is uncertainty
> surrounding the outcome of the Force situation, and until other
> investments, particularly the Adelaide Casino show a turnaround in
> their profit trends.   I invite any curious sharechat readers to
> check my debt figures (I have been known to make mistakes cobbling
> together these late night reports).   But my instinct says that over
> the next few weeks we may be presented with a rare opportunity to top
> up on one of NZs best shares, SKC,  on the cheap!  I don't think the
> recent share price drop is justified in the long term.
>
> Disclosure:  Hold SKC.
>
> Disclaimer:  All this is only my opinion, and I am sure it would be
> particularly useful to hear from those on this forum who have a
> contrary view.
>
> SNOOPY
>
>
>
>
> ---------------------------------
> Message sent by Snoopy
> e-mail  tennyson@caverock.net.nz
> on Pegasus Mail version 2.55
> ----------------------------------
> "You can tell me I'm wrong twice,
> but that still only makes me wrong once."
>
> --------------------------------------------------------------------------
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