RE:RE:RE:RE:RE:NCIB vs DividendsBarstoolSage wrote: Current float is 22,500,000
Point where the Wills ands the institutional investors begin to own more than 50% of the company...20,884,500
that is achieved after 1615500 shares are cancelled
Just wondering what shareholders feel about that
I see that "strong inside position" is desirable to some, but inside control is another matter.
Note I am not saying "the sky is falling", just not sure I want to give up cash flow to put a higher percentage of ownership in their hands
Sage.
Trying to get a handle on your concern or possible multiple concerns.
They are all valid but maybe not as pressing if we can talk them over with fellow shareholders.
Is it the allocation of cash flow used to buy back shares or is it the number of shares held by insiders? Or both?
If we can agree what all shareholders benefit equally from NCIB share cancellations, then it sounds like you may have a concern about the percentage of shares held by insiders in addition to the institutional money managers.
If that's the case, Institutions often battle insiders for a higher price when it comes to possible privatization of a business by insiders.
So view institutions as your friend in that situation.
If you are concerned about insiders seeking to take a business private at a low valuation, then that's a situation when minority shareholders vote on the offer, not the insiders. I believe in Alberta a privatization must have approval from at least 66% of those eligible to vote. Remember, insiders would not be voting; it would be shareholders like you and me. With that said, there's a whole process to properly value the business and set up a special committee to establish Plan of Arrangement. There's a lotta hoops to jump through. And then there's stubborn mules like Malx who are passionate about this business, you can bet I'd be suggesting a lofty valuation and it will be difficult to change my mind. Not interested in low-ball offers like the one Great Canadian Gaming received from Apollo. Shareholders would also be able to work with institutional holders to figure out a fair price. My price would be above $20 and will climb higher as fundamentals for GH continue to improve.
Now, as for insiders owning a large percentage of shares; that actually works in the favour of fellow shareholders in the event of a weak bid coming from VC vultures or a larger gaming entity. Our founders/insiders could just tell them to get lost if the bid is low. Outside bids must be supported by insiders. So the founders and executives here are more likely positioned to protect us rather than take advantage of us. Gotta see both sides of the chess board.
Now getting back to allocation of cash flow to the NCIB. There may be a better way to look at this process.
There are times when companies best maximize their NCIB and other times when NCIB action fades. Ideally, you slow or stop NCIB if your shares are overvalued; and you increase or max out your NCIB during times when shares are undervalued. Look at O&G companies right now. Many are buying their own shares back hand over fist. And when they are done buying shares back, they are cranking up dividends when debt is at targeted levels. Freehold Royalties FRU has increased the dividend from $0.015/mo in 2020 to a rate of $0.090/mo today. That's a six-fold increase.
Looking at GH being active with their NCIB, I am way more likely to praise this decision than criticize it. The market (those who collectively buy/sell/hold stocks) currently undervalues GH by about 40%. They view the business as if it is sick with the flu. So they avoid the shares and there's nothing exciting to bring them back to buying shares. In fact, most of the volume we see now is people exiting the shares, lobbing their holdings at passive bids near $8 mark. Gamehost has been stuck in the mud for maybe 6 years or so, and for good reason. There has been no enthusiasm because the economic backdrop has been gloomy. Six years is a long time for people to wait for a turnaround, I get that. But there is opportunity in their negative bias. Those exiting the stock now are selling to new shareholders who are looking 12-36mo forward and see that Alberta and its people are in the early stages of a multi-year period of economic growth. When Alberta is firing on all cylinders, companies like GH will thrive. For value investors, it's a matter of being patient and allowing the business to show what it is capable of. We should expect quarter over quarter, and year over year, earnings to keep grinding higher. Growth may be slow at first but growth is better than retraction. So the horse will be slow out the gates. This will work at a benefit to GH and its shareholders because it allows for more active NCIB while shares are undervalued. When shares get back to $12-14, I'd guess that you may see much less NCIB activity. Guess where the free cash flow could be allocated when debt is at $50mm and they aren't buying shares? Yes, the Dividend can be increased as revenue growth turns to growth of Free Cash Flow, then a larger dividend with a targeted payout ratio of 60-80% can be supported.
I believe that if the company eventually sets dividend at $0.72/yr, then that should be the ceiling. No higher than $0.06/mo. Residual surplus cash flow could be used to pay down debt and maybe look at increasing advertising/promotions. But these are nice problems to discuss down the road. For now, it's max out NCIB, pay down debt, and eventually we will see that dividend increase.
Maybe they increase $0.01/mo each quarter in 2023. So Q2 could be $0.04; Q3 could be $0.05 and Q4 could be $0.06. We will see what the board of directors feels is prudent. They are who approve or decline changes to the dividend.
Onlookers and shareholders must remember that the doors were forced closed during the Pandemic. This business bleeds money when it is not operating. The economic damage caused by Pandemic mandates must be healed prior to initiating a full dividend. Healing takes time. That's why I've suggested we will have dividend discussion or increase starting mid-2023 to late 2023. All depends on the rate of debt repayment and opportunities for buybacks.
Every share GH can buy today at a 40% discount is like you going to get fuel and paying $60 for $100 worth of gas. People would line up for a 40% discount on their fuel. And GH is lining up for a 40% discount on its shares when they are available. Another way to view it is if a casino valued at $10mm was put up for sale for only $6mm!! Sound interesting? Sure does!
The discount on GH shares won't last forever. So try to be patient and allow for business to get strong and healthy Q4 to Q2 2023. Good things will happen. We can watch the financial statements to monitor the progress.
Hope this helps.
And keep the questions coming. I think the more that is discussed, the better it is for everyone including prospective new shareholders.
Over the years I'm sure I've confidently bought a significant amount of Gamehost shares for fancy clients of the big banks. I did that with belief that GH was a very undervalued business that few Canadians know about and one that would be around for decades to come. I still believe that today, even more so with the start of a major economic recovery in Alberta. So let's see what the company can do the next 12mo, might impress you.
Side note / musing: If people only looked at GH's financial statements and ignored the stock chart, there would be way more interest in this company. Because the chart is sleepy, it does not look attractive to active investors. Once the fundamentals warrant the share price to be higher, it will attract the momentum herd. That's when you could see shares push way past $12+
Gotta hurry up and wait. That's really where we are all at right now if we own GH.
I believe that the few gripes onlookers have had with GH, such as timing of dividend increase, website design, IR promotion and active NCIB, are just business noise. The concerns will fade with time. The real heavy lifting at GH is over, renovations and upgrades and expansions done. Nothing to complain about at this point. Let the customers enjoy themselves and watch the business flourish with time. Everything is in place.
We are all in this with you Sage. The retail gang here is stronger when we are informed. And we all learn as we go.
Next up is how do we get you to change your mind about slot machines...