|
Hi Snoopy,
Had a quick read of your analysis and loved the
detail you provided which was presented clearly and concisely.
Quick question: Darwin Casino Depreciation: The impact you've mentioned appears to be
heavily weighted on year 1. This
should dramatically decrease years 2, 3 and onwards?
Regards,
Cris
----- Original Message -----
Sent: Saturday, February 14, 2004 7:48
AM
Subject: Re: [sharechat] skc a buy?. by
macdunk
Hi Macdunk
>
>I probably am missing
something but SKC looks like a raging buy
>right now, comments please.
>Why the drop In price?. I picked It to go up,
>how wrong can I
be. Input please.
>
The purchase of the Casino in
Darwin is an interesting development.
At the risk
of pre-empting SKC's number one analyst (Gerry S) I have
been
getting my head around some of the numbers.
EBITDA for Darwin is
reported as A$27m per year. This is not a very
useful figure
as both depreciation and amortisation have to be taken
into
account. The Casino licence in Darwin runs until 2015, which
is
near enough to ten years once SKC.NZ gets the Darwin Casino on
board. Interior fittings are depreciated over ten years.
SKC.NZ has a
policy of long depreciation times for the building shells, so
I will pick a
figure of 40 years for that. The total purchase price
was $A195m,
which includes the casino licence and buildings (the
lot). I'm going to
make a few assumptions here:
Total
purchase price ($A195m) is made up of:
Casino Licence
$A130m
Building Shell $A50m
Internal Fittings $A15m
These are to
be depreciated/amortized over 10 years, 40 years and 10
years
respectively. Those will lead to an annual charge against
profits of $A13m, $A1.25m and $A1.5m respectively, a grand total of
$A15.75m.
If we put this charge against the EDITDA figure of $A27m
we get a net
contribution after amortisation and depreciation of
:
$A27m-$A15.75m= $A11.25m
Based on a purchase price of $195m,
that gives a gross yield of
11.25/195= 5.8%.
In the last Annual
report the interest rate being paid in Australia is
7.3%. This means SKC are making an after tax *loss* on
this new
investment of some $A2.9m per year on the figures as they
stand.
I would like to remind readers at this point that I made all
those
depreciation figures up so I have no way of knowing how accurate my
projected loss figure is. Nevertheless I would be confident to say
it is
'in the ball park'.
Last years after tax profits for SKC were
$NZ107m, so taking $A2.9m
off that it isn't going to make that much
difference to the big picture.
I had a look at the MGM Mirage, previous
owners of the Darwin
Casino, website and it looks like they had a
genuine reason for
selling. MGM want to concentrate their
resources on what they
perceive as a rapidly developing UK market, a
legitimate excuse for
selling. So I don't think SKC has bought a
dog.
But SKC may need to keep the Darwin Casino on a tight leash to
achieve the results they want. SKC are betting that with
a bit of
innovative marketing, like bringing in more performer
entertainment to
the venue, they can make 1+1 equal 3. If they
can incorporate the
tricks from the NZ operation, then I think they have
every chance of
pulling it off.
It is interesting to compare Darwin
to the Adelaide Casino acquired on
30th June 2000.
Consideration
paid for Adelaide $240.8m (on 30th June 2000).
plus extra capital spending
to bring SKC Adelaide up to scratch $20m
(estimate) can be broken down as
follows:
Casino Licence (85year duration) $A225m
Building Shell (40
year life) $A20m
Internal Fittings $A15m
These will lead to an
annual charge against profits of $A2.6m, $A0.5m
and $A1.5m
respectively. Last year EBITDA for Adelaide was
$A25.9m,
which leaves EBIT of $A21.3m. This represents a gross
return
on the $260m invested of 8.2%. Again we shall assume the cost
of the
borrowed money is 7.3% which means that SKC has an interest
bill of some
$A19m to pay in connection with the Adelaide Casino. So
we are
looking at a meagre profit of some $A2.3m as the contribution
form Sky
City Adelaide. That meagre profit has now been wiped
out
by the acquisition of Sky City Darwin. That means SKC will
have no
imputation credits available to be passed onto Australian
shareholders.
That in turn means there is no compelling reason for
Australian
'income' investors to rush out and buy this share.
However, even
without this tax incentive a gross yield of 5.2%, or 3.5%
after tax is not
'that' bad by Australian standards.
However,
because the Australian business are teetering around the
'break even'
point it does mean that any profitability improvements
*from here* will go
towards making real taxable income in Australia and
that could make a big
change to the yield picture from an Australian
perspective.
So I
say forget Auckland and the Sky Tower. We *know* that
business will continue to do well. Looking a couple of years
out, the
real future of SKC will depend on how the Australian side of the
business performs.
Is SKC a good buy now? Yes,
but almost entirely due to their ability
to profitably expand their
Auckland site, around the new Convention
Centre. The
contribution from Australia will come later, which is
possibly why
impatient Mr Market marked down the price of SKC on
hearing of the Darwin
casino acquisition.
SNOOPY
discl: hold
SKC
--
Message sent by Snoopy
on Pegasus Mail version
4.02
----------------------------------
"You can tell me I'm wrong
twice,
but that still only makes me wrong
once."
----------------------------------------------------------------------------
To
remove yourself from this list, please use the form at
http://www.sharechat.co.nz/chat/forum/
|
See IRG research reports
