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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.
- 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 Analyzer)
- 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
Government tax increases, tightening of gaming regulation; economic sensitivity; new acquisition fails to improve operations enough to justify price and capex.
Moderate barrier to entry in form of government licensing; market/currency diversity, Polish market share; captive cruise customers.
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
The author, Will Morrissett has a long position in CNTY
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