MCK - Millennium & Copthorne Hotels NZ Limited

Started by BlackPeter, Jun 29, 2022, 11:52 AM

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BlackPeter

So much more than just a hotel chain. Actually - MCK (NZ) is a small part of the global CDL development organisation, and is majority owned by MCK in the UK, which is majority owned by CDL Singapore, which is (through a fund) majority owned by the Kwek family in Singapore.

MCK itself owns next to their NZ hotels as well CDL (NZ), a quite profitable land development company and makes money with selling appartments in Sydney.

Thanks to their property business did they come quite well through the Covid slump .... and they are now outstandingly positioned to make money with travel and tourism on the rise again. Always good to buy at the end of a crash the surviving companies at very reasonable rates. Only the fittest survived, the competition is smaller and demand is growing.

Fundamentals: Average P/E (10 yrs) currently below 10. Current SP is roughly 65% of their NTA - and even the NTA is very conservative rated - all assets are at purchase value, not at the current estimated value. Extremely conservative balance sheet (liabilities to assets: 15%).

On the flipside - low liquidity share with dominating majority owner. Forget any dreams of making quick bucks by take over, but IMHO a good share to become rich using the slow but safer lane ... 

Discl: happy holder of both MCK as well as CDI;
 

Plata

Do you have any ideas why the gearing is so conservative? For what is effectively a property company I thought closer to 30% gearing was normal.

BlackPeter

I guess the majority owners just like it that way - and it worked for them over the last 60 years (well, 59 - CDL Singapore was founded in 1963). Why change a strategy which works?

BTW - hardly any debts came pretty handy when Covid arrived and business broke away over night. Having no loans to serve made it just so much easier to survive ...

LaserEyeKiwi

A large long term hold for me. Very strong balance sheet (zero debt), and strong underlying cashflow generating assets across the MCK/CDI consolidated group.

Keep an eye on Auckland Airport & AirNZ monthly passenger data for good near real time data on how the inbound tourism market is returning to normal. Australia already back with a vengeance, and July is when most international long haul routes begin operating at something approaching normal again.

The end of pre-departure testing requirements for those heading to NZ was the final barrier to come down (ended last week).       

BlackPeter

HY results are out ... and its a pleasant surprise:

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/MCK/396687/376193.pdf

They still made a profit in the first HY (half of what they made last year), NTA kept increasing to $3.33 per share and they are now saying that they expect FY to return a profit as well (in February they forecasted only break even) - hey, this is an upgrade!

All up from here?

BlackPeter

Anybody noticing the latest SP trend? SP just shooting through the MA's and now well above the MA200 (which some might consider a positive indicator).

You cannot view this attachment.

Anyway - a significant part of their income is from part owning CDI (and even if the property sector keeps tanking, people will need new sections) and hotel business can in my view only go one way after the Covid hiatus. Average backward PE at current SP is 9.4; Not bad. Not sure whether I want to speculate on the future earnings growth (given hotels are needed again), but I am sure it will turn out to be a pleasant number.

Looking forward to the 2022 numbers. While still difficult (remember Covid?) - I am sure they will provide a good base to imagine nice things for 2023.

Waltzing

not really a sector one follows down under but tourism stocks  have moved up over the last 6 months

Thl july 2022 2.30 ish now 3.90

Mos

MCK is one of my favourite deep value stock holdings. To be fair, as others have pointed out thin liquidity and no obvious catalyst for the deep value to be recognised by Mr Market. Happy to hold long term and one day when both tourism and land development are firing the value may become more apparent to a larger group of  investors. Despite the property gloom I see some real pluses with subsidiary CDI including the opportunity to deploy the large cash holding to acquire development land at or near the nadir and the self fulfilling prophecy aspect of valuers using circa 15%+ discount rates to value development land - with banks likely to require valuations on projects undertaken by CDIs debt funded competitors.

Crackity

Quote from: Mos on Mar 15, 2023, 11:04 PMMCK is one of my favourite deep value stock holdings. To be fair, as others have pointed out thin liquidity and no obvious catalyst for the deep value to be recognised by Mr Market. Happy to hold long term and one day when both tourism and land development are firing the value may become more apparent to a larger group of  investors. Despite the property gloom I see some real pluses with subsidiary CDI including the opportunity to deploy the large cash holding to acquire development land at or near the nadir and the self fulfilling prophecy aspect of valuers using circa 15%+ discount rates to value development land - with banks likely to require valuations on projects undertaken by CDIs debt funded competitors.

Nice - Gonna give us an estimate of fair value per share?

Mos

Hi Crackity,

Sure, happy to share some thoughts and hopefully both MCK believers and cynics will reciprocate by sharing their take.

Current share prices of $2.16 for MCK and $2.17 for MCKPA results in market cap of $343.3 m. I think the business is worth at least book value of $531.0 m (equity attributable to owners of the parent). Market cap is therefore 65% of owners equity at net book value (noting that book value is based on cost price not valuation).

The 66% owned CDI has produced an average NPAT of $31.3 m over the last 7 years with a range from $27.0 m way back in 2016 to a record of $34.1 m in 2019. The 2022 NPAT was close to the seven year average at $31.0 m. I think over the long run this is an attractive business that can continue to deliver strong earnings. It has a very strong balance sheet with no debt and $71.7 m of cash and short term deposits. So the challenging property market may impact earnings short term but should offer great opportunities to deploy cash to acquire development land at value prices. The book value of CDI represents a modest p.e. of 8.8 based on both 2022 NPAT and seven year average NPAT.

The hotel business has clearly had a tough few years and has a net book value (based on acquisition cost) of $252.5 m. Pre-Covid the hotel business earned NPAT of $26.3 m in 2018 and $25.0 m in 2019. I think it should be able to return to this level of earnings as tourism recovers over the next couple of years. In 2022 it suffered a NPAT loss of $2.6 m. If the hotel business can return to an NPAT of $25 m it would improve MCK NPAT to $60.0 m (assuming everything else remains the same) with $49.4 m of that attribute to equity holders of MCK. This would put the whole business on a p/e of 10.7 at the book value of $531.0 m. Overall I see little downside at the current share price, a good margin of safety and good upside. The substantial cash holdings at both CDI and MCK provide a significant level of comfort to ride out the storm and take advantage of compelling opportunities.

Having said all that, the stock has very low liquidity, minimal institutional interest and no obvious catalyst to rerate the share price. Therefore, I see it as a long haul investment where I can own part of a good business at deep value price. I do not expect a rerating of the price at least until both the hotel business and the property business are firing on all cylinders.

None of this is advice just some thoughts that I am sharing. I hope to hear others view on the company.

Cheers
 



         

Crackity

Quote from: Mos on Mar 16, 2023, 12:23 PMHi Crackity,

Sure, happy to share some thoughts and hopefully both MCK believers and cynics will reciprocate by sharing their take.

Current share prices of $2.16 for MCK and $2.17 for MCKPA results in market cap of $343.3 m. I think the business is worth at least book value of $531.0 m (equity attributable to owners of the parent). Market cap is therefore 65% of owners equity at net book value (noting that book value is based on cost price not valuation).

The 66% owned CDI has produced an average NPAT of $31.3 m over the last 7 years with a range from $27.0 m way back in 2016 to a record of $34.1 m in 2019. The 2022 NPAT was close to the seven year average at $31.0 m. I think over the long run this is an attractive business that can continue to deliver strong earnings. It has a very strong balance sheet with no debt and $71.7 m of cash and short term deposits. So the challenging property market may impact earnings short term but should offer great opportunities to deploy cash to acquire development land at value prices. The book value of CDI represents a modest p.e. of 8.8 based on both 2022 NPAT and seven year average NPAT.

The hotel business has clearly had a tough few years and has a net book value (based on acquisition cost) of $252.5 m. Pre-Covid the hotel business earned NPAT of $26.3 m in 2018 and $25.0 m in 2019. I think it should be able to return to this level of earnings as tourism recovers over the next couple of years. In 2022 it suffered a NPAT loss of $2.6 m. If the hotel business can return to an NPAT of $25 m it would improve MCK NPAT to $60.0 m (assuming everything else remains the same) with $49.4 m of that attribute to equity holders of MCK. This would put the whole business on a p/e of 10.7 at the book value of $531.0 m. Overall I see little downside at the current share price, a good margin of safety and good upside. The substantial cash holdings at both CDI and MCK provide a significant level of comfort to ride out the storm and take advantage of compelling opportunities.

Having said all that, the stock has very low liquidity, minimal institutional interest and no obvious catalyst to rerate the share price. Therefore, I see it as a long haul investment where I can own part of a good business at deep value price. I do not expect a rerating of the price at least until both the hotel business and the property business are firing on all cylinders.

None of this is advice just some thoughts that I am sharing. I hope to hear others view on the company.

Cheers
 



         



Nice work Mos - My notes about CDI ( I own both MCK and CDI )

The independent market value of CDI's property holdings as at 31 December 2022, was $405.4 million (2021: $359.7 million) which reflects both the acquisitions made and value added in 2022. At cost, the portfolio was valued at $239.5 million (2021: $209.1 million) in line with CDI's accounting policies. 405.4 mill Val - 239.5 mill cost - value the market doesn't really see $165.9 mill

288.8 million shares issue

Additional value per share 57.4cps

Stated NTA per share at cost end 2022 - 107 cps

Plus 57.4 cps

Approx 164 cps  ( rough figure - needs to be adjusted for tax and current market value of the subdivisions /land )




 8)

Mos

#11
Yes good point Crackity. I see the $165.9 m you refer to as the source of the next 3 to 4 years profits for CDI...
- $165.9 m x 72% / 4 years = $29.9 m NPAT per year
- $165.9 m x 72% / 3 years = $39.8 m NPAT per year

Land development a very good business if done well.

Happy to hold CDI via MCK.

 

Mos

Interesting development. As a shareholder I am a bit nonplussed by lack of expected earnings metrics from this acquisition. Hard to evaluate without more informative disclosure.
https://www.nzx.com/announcements/408779

BlackPeter

#13
Quote from: Mos on Mar 26, 2023, 01:13 PMInteresting development. As a shareholder I am a bit nonplussed by lack of expected earnings metrics from this acquisition. Hard to evaluate without more informative disclosure.
https://www.nzx.com/announcements/408779

Agreed - this was as well the subject of some hard hitting questions from the floor in todays AGM, particularly (but not just) from the ACC account manager ... and I found their answers re independence of decision making (and in whose interest the directors acted) not quite satisfying. No meaningful answers related to business case either - its all commercially sensitive.

Clear "go away" to minority share holders.

Probably fair to say that the board does not need to care about the views of minority share holders (given that the Singaporean Kwek family holds through various investment vehicles something like 70%) ... and this was something which strongly came across today. They just did their formal duty, but clearly didn't see any reason to communicate with or work for minority share holders. They don't even emphasize that they acted in our (shareholders) interest - just in the interest of the company (whatever this means).

Quite disappointing ...

Mos

Thanks for your update from ASM BP. Agree with your comments. The value on offer is good but the majority shareholder is a question mark for minorities to consider.