Century Casinos CNTY Stock Analysis

March 22nd, 2010

Thank you guys for sending me your ideas and letting me post it. I’ve been super busy with work, spreadsheet upgrades and other projects.

Will Morrissett sends in this stock analysis of Century Casinos.

Century Casinos – CNTY

Century Casinos [[CNTY]] is focused on mid-sized gaming operations.
North American operations are not heavily reliant on tourism.
Cruise ship operations have a captive audience.
Polish operations are in high-quality hotels.

There are a handful of reasons for the stock’s mispricing. First, the industry is unattractive as an effect of the obvious macroeconomic situation. Gambling is considered a loser of the ‘new normal’, the delivering consumer, persistent unemployment rate, jobless recoveries, increasing taxes, etc, etc.

Second and more company specific, CNTY has changed dramatically over the past few years; this has created a sense of uncertainty around the company’s future.

Over the past couple of years the company has sold operations in Prague and South Africa and taken a large write down of it operations in Poland.

On the other side of this coin, it has picked up a depressed operation in Canada and inked new cruise ship deals. These changes have shrouded the company’s future in uncertainty which analysts and Wall Street can’t handle.

Luckily, I don’t have to ‘know’ what will happen to the future EPS, EBITDA, margins, and blah blah to buy CNTY because the assets are cheap, the balance sheet is clean, management is incentivized and a handful of catalysts are available.

In theory that should provide a decent margin of safety while waiting for improved operations.

Quick Facts

Book Value per share (12/31) = $4.54 w/very little intangibles on balance
P/Tangible Book = 0.52
F Score = 8 (based on Old School Value Spreadsheet)
Remained FCF positive through recession
Cash = $21M (after Silver Dollar casino acquisition, see below)
LT Debt = $16M (No maturities in 2010)
Total Liabilities = $27M
$58M market cap $15M Buyback approved (26% of market cap)
$15M Buyback approved (26% of market cap)
Only 2 Analysts coving company (both ‘buys’)
+11% Insider Ownership
- CEO Peter Hoetzing 5.5% ($3.2M)
- Co-CEO/President Erwin Hiatzman 5.5%

Revenue Sources (2009):

82% Casino
15% Hotel rooms
3% Other

Operations & Properties

A) 2 Alberta, Canada Casinos

Silver Dollar (Calgary, CA) Acquisition – Tons of room for improvements.
Closed Mid Jan 2010 (Q1) Price of $11.5M
Purchased from distressed seller at 50% of previous purchase price
Gaming layout to be improved and expanded. Open space already exists.
30 lane bowling alley, open multipurpose spaces and 7 acres of land in City of Calgary
To be rebranded under Century name
Edmonton site adding 20 more slots in Q1 2010

B) 2 Colorado, US Casinos – Look for margin and revenue improvement

Colorado betting limits raised from $5 to $100 in July 2009
Roulette and craps approved July 2009
Operational hours expanded to 24 in July 2009

C) 8 Polish casinos (33% equity stake in this co)

Polish equity stake write down of $9M in Q4 (80% paper loss) due to new gaming tax/laws
Located in 4 and 5 star hotels, 50% of Polish casino market share
CNTY seeks to increase ownership and management of Polish company

D) 5 Cruise ship casinos currently operating

3 new Cruise casino deals signed on March 15th , 2010
Additional contracts under negotiation

Risks

Government tax increases, tightening of gaming regulation; economic sensitivity; new acquisition fails to improve operations enough to justify price and capex.

Advantages

Moderate barrier to entry in form of government licensing; market/currency diversity, Polish market share; captive cruise customers.

Catalysts

Buybacks; new operations will slowly provided clarity in revenue, FCF, earnings, etc. ; any improvement in unemployment rates/economic conditions; potential of additional cruise ship contracts; improved margins in Colorado; management changes in Polish operations; increase in institutional ownership (current estimate= 48%). Company is cheap enough to be an acquisition target (no evidence of this currently).

Note: Shares are listed both in US and Austria

Most recent company Presentation – Link to PDF

Disclosure

The author, Will Morrissett has a long position in CNTY

Are your stocks cheap or overvalued? Check with the stock valuation spreadsheets

- Jim

Good idea but I would have liked to seen more of an analysis rather than just the providing of ratios.
.-= Jim´s last blog ..Asta Funding – Postion Exited & Analysis =-.

- Kyle Laracey

I think this was a good start, good idea, but I think there are a few key details excepted. First off, its at about 4x its NCAV, with a NNWC per share of about 45 cents. Im on about pg 7 of the annual report, and this is what i’ve found

Economic Moat
- Regional Casinos result in:
o Repeat Business (focuses on local customers)
o Mid-size regional casinos less affected by International trends
o Have smaller capital expenditure requirements than large ones
- Cruise Ships agreements result in:
o Moat to entry because of agreements, which give right of first refusal to build casinos on all new ships of these companies
- Large Cash on hand: European subsidiary paid for Silver Dollar Casino with about $11mil cash on hand in 3months.

DANGER
- In Central City/Blackhawk, huge casino industry. 15+ casinos, Blackhawk has less rigorous historic area laws, allowing big casinos and fine dining
- Maximum of $100 wager at Colorado operations
- Blackhawk has 58% market share in Colorado.
- Very small hotel – only 26 rooms (Central City/Womack) (HOWEVER, new rooms may be added)
- Non-covered parking garage in Womack
- Loosing market share fast in colorado

Profit from Selling of Existing Businesses
- Sale of Prague Operation resulted in .9/2.2mil profit, or a 40% profit
- High profit on sales of South African Operations
- NOTE: these large profits are listed as DISCONTINUED OPERATIONS, and do not come into play in the EPS, which therefore explains the negative EPS.

Cont Ops + Developments
- Edmonton Operations (1 mil metropolitan area, capitol of Alberta)
- Cripple Creek, Colorado – 1996, 26 room hotel room
1.8mil renovation in 2008
- Central City, Colorado – 2006, 2007 acquired rest of equity in joint venture. 26 hotel rooms.
- Casinos Poland – 1989, 7 casinos in Poland, plus one slot machine casino
- Around 7-8 on Cruise ship
————–
really, I think the big danger is the fact that it has such a limited market share in colorado, and there is not much barrier to entry.

I could be wrong, but this is what the 10-k says
Kyle

There was a new, $250 mil casino with pool and 500 hotel rooms, vs. 26 hotel rooms of Century Casinos, put in in the same city.
In 2010, a new casino will be put up right near the casino.
loosing market share

The kind of analysis, and my intention certainly isn’t to knock the article because ultimately is was a good article and great idea, but the kind of analysis I would have liked to seen done is one that would have produced a detailed valuation such as:

A subsidiary of the purchased 100% of the total outstanding shares of The Silver Dollar Casino located in Calgary. The company makes this statement on page 27 of their most recent 10-K:

“The Silver Dollar is a 93,000 square foot casino/entertainment facility located on approximately seven acres of land in Calgary.”

However, the company states that the square footage of this building is only 19,000 on page 22 of the same 10-K.

Now, I know that Canadians don’t interrupt feet any different than anyone else classifies what a foot is. So, this is obviously an error in reporting.

In any event, after pulling up the physical location of the building on Google Maps, one can see that the building is obviously 19,000 Square Feet rather than 93,000 Square Feet.

There’s a huge valuation difference between 19,000 and 93,000 and could change the value you place on the business by dollars per share.

Anyway, this is the kind of detail that interests me. In any event, thanks for the idea.
.-= Jim´s last blog ..Asta Funding – Postion Exited & Analysis =-.

Kyle,

I’ve been to Black Hawk, Colorado several times. There are many casino’s in that area. Every small town in the mountains of Colorado have dozens of casino’s. They’ve been building a mini Vegas in that area for years. This is nothing knew to the area. A new casino gets put up about every 3 years in that area.
.-= Jim´s last blog ..Asta Funding – Postion Exited & Analysis =-.

Century Casinos CNTY Stock Analysis

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