Why I own SKYCITY Entertainment Group Limited-Ord shares

This month I thought it would be interesting to take a candid look into what I own in my own investing portfolio and, more importantly, why I own it.

SKYCITY Entertainment Group Limited-Ord (ASX: SKC) is one of my largest holdings and part of the economic engine driving my portfolio. Many investors have an aversion to gaming companies on ethical grounds which I completely respect. For me though, SkyCity Entertainment ticks a large number of boxes as a quality, long term investment.

Iron-clad competitive position

I want to own companies with iron-clad products or competitive positions which shields them from competition. SkyCity achieves this through long-term monopoly casino licenses which gives it a pivotal competitive advantage.

Around these license the company has developed comprehensive ‘entertainment hubs’ of hotels, bars and branded restaurants which are in prime geographic locations, drawing more people to the area.

Strong cash generation

The result is a company with significant operating income and free cashflows. SkyCity will be using this cash to support its ongoing growth plans, but the cash is also used to fund a regular dividend.

The company’s cash generation is why I say it makes up ‘the economic engine’ of my portfolio. The dividend provides the option of income which can be reinvested and compound into SkyCity either via the company’s dividend reinvestment plan, or into any better opportunities on the market.

Exposure to New Zealand growth

One other big reason I own SkyCity is to gain exposure to Auckland’s long-term population growth and the New Zealand tourism market.

The city is projected to grow by one-third over the next 17 years according to Statistics New Zealand and this organic growth aligns nicely with my long-term investing policy. SkyCity will be able to capitalise on the growth through a connection to the city’s planned City Rail Link and is within walking distance of many significant hotels.

Being heavily leveraged to Auckland’s bubbling economy and consumer spending is a clear risk, but strong organic population growth should mitigate this.

Would I buy today?

SkyCity shares don’t appear to be a screaming bargain to me at its current price, but neither does it seem over priced. Given the number of boxes it ticks for me personally and the long-term prospects of the company, I would be comfortable to add to my existing holding today.

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Motley Fool contributor Regan Pearson owns shares of Sky City Entertainment Group Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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