Great Canadian Gaming Corp. T.GC

RBC Preview

[retiredcf]

Current and upside scenario targets are $63 and $77. GLTA

April 30, 2019

Great Canadian Gaming Corp

Q1/19 preview: Expecting one-time items to impact GTA segment results

Our view: Great Canadian Gaming Corp. ("GC") will report Q1/19 results on May 6 BMO. Call scheduled for the same day at 11:00 am ET. Dial-in: 1-888-390-0546. We forecast Adjusted EBITDA of $69.2MM (+2.6% YoY) at GC's interest.

Key points:

Revising price target -$1 to $63; Reiterate Outperform rating – Our $63 price target is based on ~9.5x our blended 2020E/2021E "net" Adjusted EBITDA of $422MM.

Investor focus – We expect investor focus at Q1 reporting to be on: 1)the impact on Q1 results from one-time items previously highlighted by management (incl. extremely cold weather and a service interruption at Casino Woodbine); 2) trends in British Columbia as GC comps the impact of anti-money laundering regulations implemented last year, which meaningfully impacted table drop at River Rock and Hard Rock; 3)any updates on the redevelopment/expansion activities across the 7 GTA and West GTA Bundle facilities; and, 4) any management commentary on the recently announced sale of the company's US operations.

A number of one-time items expected to negatively impact Q1/19 results – At Q4/18 reporting, management noted that extremely cold temperatures in Ontario (Jan. and Feb.), as well as a service interruption at Casino Woodbine (due to a cracked water main), are expected to negatively impact Consolidated Adjusted EBITDA in the Ontario segment by $17-$18MM (~$9-$10MM at GC's interest). We do not expect any impact from these two factors beyond Q1.

Forecasting Q1/19 Adjusted EBITDA of $69.2MM (+2.6% YoY) at GC's interest – We forecast revenue of $261MM (+13% YoY). We expect the strong YoY revenue growth to reflect growth at the GTA Bundle (first full quarter of contribution from the 50 live VIP tables, partially offset by a number of one-time headwinds), contribution from the West GTA Bundle, and +5% YoY growth in the British Columbia segment.

GC announces sale of its US operations to Maverick Gaming for $US56MM – On April 26th, GC announced that it has agreed to divest all of its US facilities to Maverick Gaming LLC for cash proceeds of US $56MM, representing a ~9x transaction multiple based on 2018 EBITDA for the segment. GC's US assets generated 2018 GGR and Adjusted EBITDA of US$28MM and US$6.3MM, respectively. We believe the transaction multiple of ~9x EBITDA provides support to our total company valuation of ~9.5x, given that the US segment was small in scale and generated EBITDA margins that are materially below total company margins (2018 US segment EBITDA margin was 20.5% vs. total company margin of ~39%).