SKC
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1.06% $1.40 skycity entertainment group limited

Hi there,I have come to the conclusion that I’ll be better at «...

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    12 Posts.
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    13/02/21
    17:51
    Post #: 50960004

    Hi there,


    I have come to the conclusion that I’ll be better at « stock picking » if I write down my thinking before buying parts of a company. Also, by publishing on this forum, I am allowing myself to be judged. And hopefully receive some insight on my thinking.


    This is not an « analysis » nor a recommendation, I am no genius nor a pro and have not the pretension to be better than most. Also, I definitely think that you should do your own research as we all have our own bias.


    I hope that this little input of mine would engage in quality discussion around the stock.


    I do not encourage you to gamble.


    ____


    The Company:


    SKYCITY Entertainment Group Limited (SKC:ASX) is the owner of:

    SkyCity Auckland, acquired in 1996. (Crown Jewel of the group).SkyCity Queenstown & Queenstown Wharf, acquired in 2000 and in 2013.SkyCity Hamilton, acquired in 2002.SkyCity Adelaide, acquired in 2000. Currently being refurbished.

    - SkyCity Online Casino, launched in 2019 it has attracted 35,000 customers since then (31/08/2020 numbers).

    Let’sPlay.Live (LPL), is a esport business based in New-Zealand. It offers gaming leagues and broadcast/produce entertainment content derived from those gaming competition.


    —> 22 restaurants, 21 bars, 4 hotels, 5 casinos, 4 locations, 2 online business.


    Licensed Business:


    SKC evolves in a licensed operated industry. Casinos licences are scarce and are heavily relying on cash. Competitors won’t happen overnight.


    From what I gather online, from the 6 operating casinos in New-Zealand, 4 of them are owned by SKC!


    Meanwhile, SkyCity Adelaide is the only casino in South Australia... a states that counts 1,77M living souls.



    Value:


    Another thing that brought me to buy shares in SKC is the value of lands and buildings. It’s stated as 2B$ in their latest annual reports. If we divide those 2B$ by the amount of outstanding ordinary shares (664 946 279), we obtain a 3$/per share.


    Yesterday, shares have been trading at 2,97$NZ on the NZX. (I took the New-Zealand listing as is it easier to compare NZD with NZD), which means that we could buy the company for « free » because M. Market price only account for the value of land and buildings!


    Of course, it’s more complicated than that because those 2B$ don’t account for the current debt linked to those buildings and lands. But 2B$ market cap when those lands and building are worth 2B$, that’s value!


    We should also note that SKC have an excellent and consistent track record concerning dividend distribution and net profit.


    Ownership:


    The top 20 shareholders list is composed of Banks, Funds and other institutions. They own a combining 76% of the outstanding shares. I usually prefers companies that are runs by founders as it often means that they will try their best to grow the company’s value without taking unnecessary risks or to please short term holders.


    But James Packer single handedly proves that having a large stake in the casino business is not an easy feat. There is probably too much legal struggles for an « individual » to run a gambling business of this magnitude in 2021.


    I also believe that those institutions would not risks their reputation on money-laundering. That doesn't means that SkyCity is clean though.


    Charts https://hotcopper.com.au/data/attachments/2903/2903219-26256f7f18413a18c5eb56252249f282.jpg

    SKC have traded for a long time between 3,5$AUD and 3$AUD.


    SKC HAVE NOT TOTALY RECOVERED SINCE MARCH:

    EVEN THOUGH ONLINE CASINO GOT 35,000 CUSTOMERS (31/08/20 numbers)

    AND NEW-ZEALAND is LESS IMPACTED BY COVID19 THAN AUSTRALIA




    Why I think that SkyCity Entertainment Group Limited share price is undervalued?


    I believed that the market doesn’t realise how important the online business is.I also believed that the market only sees the business side of SkyCity and not the 2B$ of land and buildings owned by the company.I also believed that « Crown Limited » occupies more brain memory for retail investors overshadowing SkyCity Entertainment Group.


    Future:


    The Online Businesses brought 4.9M$ in revenue in FY2020. Meanwhile, the two « physical » locations of Queenstown brought only 9,9M$. Not bad for businesses that have been launch in 2019 (Online Casino) and acquired in 2018 (LPL)


    More than the revenue, the data mined online should help SkyCity built more efficient/addictive games for it’s physical locations.


    The management have a proven record of buying and expanding existing locations. We can only hope that the future will bring more opportunity! The re-opening of the Adelaide Casino and the end of Covid should bring tones of revenues for the company in the next few years.


    The number of tourist in New-Zealand amounted to 3,8M in 2019. We can imagine that it fell drastically in 2020 due to Covid19. I am convinced that as soon as a vaccine will be widely distributed, the number of tourist will go back to 3,8M providing additional dollars to SkyCity.


    I highly think that SKC could be trading at 4$AUD (+45%) as soon as early 2022.


    References:


    SKC Price at posting: $2.76 Sentiment: Buy Disclosure: Held
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