The Gaming Vue has had a great year, notching up a total return of +21.06% in the last year (1 May 2017 to 30 Apr 2018). Over the same period, the ASX 200 posted a total return of +5.46% while the MSCI All Country World Index managed +13.62%.
Top contributors to performance were:
Churchill Downs Inc. (NASDAQ:CHDN): +64.38%
Penn National Gaming Inc. (NASDAQ:PENN): +62.90%
Boyd Gaming Corp. (NYSE:BYD): +46.27%
Detractors to performances were:
Playtech plc (LON:PTEC): -7.58%
Rank Group plc (LON:RNK): -9.91%
Global Gaming Vue Company Updates
Boyd Gaming Corporation (NYSE:BYD)
Boyd has guided a conservative US$600 to US$620 million in EBITDA for FY 2018 on a like-for-like basis which translates to 0.6% to 3.9% growth. While that in itself is not very exciting, Boyd is following a strategy of pursuing acquisitions at reasonable multiples, diversifying its earnings profile, reducing leverage and returning capital to shareholders. To that end, in 2H of 2018 Boyd is acquiring four former Pinnacle casinos from Penn National Gaming and Valley Forge casino resort. The acquisition is likely to diversify earnings stream with revenue contribution from midwest and south casinos to grow higher, with dependence on Vegas local casinos to fall. Boyd is targeting maintaining leverage between 4x-5x Net Debt/EBITDA. While the acquisitions make it harder to achieve those targets, they also help in boosting free cash flows.
Churchill Downs Inc. (NASDAQ:CHDN)
CDI’s Kentucky Derby has new premium seating, sponsors, a long-term TV contract through 2025 and a presenting sponsor contract through 2020 which helps lock in revenues. Apart from focus on core assets like the Kentucky Derby, CDI also keeps an eye out for opportunities for inorganic growth via acquisitions in higher margin casino operations and real money gaming. CDI dipped its toes in social and interactive gaming when it acquired Big Fish Games in 2014, but has recently sold it after just three years of ownership. While the sale of Big Fish results in lost revenue in the near term (as evidenced by 1Q FY 2018 numbers), but longer term outlook looks promising. CDI acquired two Eldorado casinos in Mississippi and Pennsylvania which should improve group margins. Faster growth at its online wagering platform TwinSpires is likely to complement its traditional brick and mortar business. The cherry on top is the opportunity to expand its sports betting business on back of recent Supreme Court ruling.
Penn National Gaming Inc. (NASDAQ:PENN)
In December 2017, company management announced acquisition of 78% of Pinnacle for US$2.8 billion. This gives Penn a strong foothold in the regional US gaming market, given Pinnacle is the largest player. The acquisition is at 6.6x EV/EBITDA, below peer average of 8.8x and is being funded by the sale of 4 of the casinos to Boyd. The acquisition is likely to bring US$100 mn worth cost savings and other cross-sales benefits. Penn has also successfully bid for two of the ten category 4 licenses in Pennsylvania auctions, and will be determining sites sometime this year. In 2018, Penn’s revenues could grow +60% year on year due to the acquisitions, or 3% on a like-for-like basis. There are some after effects in its Tropicana casino in Las Vegas due to fallout from the shooting, but is likely to recover later this year. EBITDA margins are also likely to improve driven by cost savings and marketing efficiency, possibly by as much as 150 bps.
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