Originally Posted by
Snoopy
Have had another good look at my SKC spreadsheet, and in particular the growth levels inside and outside of the Auckland home site. based on post financial crisis performance, I have revised my projected return on equity figure of the Auckland site down to 25% (down from 27.3%). The Auckland site has done well, but as a counterpoint to that, management have spent an awful lot of money to make it perform!
I have also raised my 'out of Auckland ROE' from 8.2% to 8.6%. This reflects the significantly improved returns from Darwin and Hamilton in particular. These two changes have meant very little to my ongoing earnings projections though.
I calculate the annual 'convention centre approved return' to be 9.53% (gross, dividends and capital gain), up from 9.34%, based on an SKC share price of $3.80. The 'convention centre somewhere else' return goes up to 7.6% (gross, dividends and capital gain), up from 7.4%.
Perhaps worryingly, given how long these convention centre negotiations are going on, I believe the difference in share price today between 'Convention Centre Yay' and 'Convention Centre Nay' is about 80c per share.
Put another way, if the convention centre is approved, the SKC share price I think would break the $4 barrier. If turned down then I believe something like $3.20 would be closer to fair value.
Usually a share price drop from $3.80 to $3.20 on a quality share like SKC would attract my interest. In this case though I believe such a share price fall in the 'Convention Centre Nay' scenario would probably be justified. Such is the dependence of SKC on the ongoing development of that Auckland site.
On another thread someone suggested that because SKC had lagged the market a bit this year, it might be a good buy. I would say it is currently fairly priced, with a significant downside risk should convention centre negotiations go less than favourably. Be careful out there fellow investors.
SNOOPY
discl: hold SKC