Great Canadian Gaming Corp GCGMF

RBC

[retiredcf]

October 23, 2017

Great Canadian Gaming Corp

Addresses media reports regarding River Rock

Impact:

GC addresses media reports regarding River Rock.

First impression

Event: Great Canadian Gaming (“GC”) released a statement this morning addressing the recent media reports regarding money laundering concerns in British Columbia, and at the company’s River Rock Casino Resort facility. GC noted that it follows all procedures required by the British Columbia Lottery Corporation (“BCLC”), and contrary to the suggestions in media reports, to its knowledge it is not under investigation in any jurisdiction. The company noted that its responsibility within BC’s Anti-Money Laundering system is to identify and report unusual and large cash transactions to the BCLC. GC’s monitoring/reporting to BCLC helped identify the individuals involved in RCMP’s E-Pirate probe into alleged money laundering activities, according to the company.

Our view: We continue to believe that the recent news reports relate to activities that took place before the new anti-money laundering measures in BC were implemented in late-2015. The BC government also recently announced it has appointed an independent expert to undertake a review of anti-money laundering policies and practices in the gaming industry. We believe this review could serve as a potential overhang while investors await additional details/commentary regarding the GTA Gaming Bundle. We continue to view GC as an attractive investment opportunity given the potential upside from the GTA Gaming Bundle, the company’s under- levered balance sheet (leverage at 1.0x LTM EBITDA vs. the average for regional gaming peers at 3.5x), and its attractive valuation (GC is trading at 7.4x our 2018E EBITDA vs. the average for regional gaming peers at 9.8x).

Additional details:

• GC and its various gaming facilities are audited by regulatory bodies on an ongoing basis:

  • Every year, River Rock is subject to up to 25 compliance reviews by

    BCLC and a comprehensive audit by the Gaming Policy Enforcement

    Branch (“GPEB”).

  • BCLC also commissions an independent audit of GC’s compliance with

    BCLC’s Anti-Money Laundering program every 2 years, while FINTRAC

    also typically conducts an Anti Money Laundering audit every 2 years.

• GC provides records relating to unusual and large cash transactions

  directly to the BCLC.

• BCLC has the obligation to independently review these transactions and

  assess whether these reported transactions should then be reported by the BCLC to FINTRAC