Great Canadian Gaming Corp. T.GC

RBC

[retiredcf]

Their upside scenario target is $73.00. GLTA

August 8, 2018

Great Canadian Gaming Corp

Q2/18 preview: Looking for increased visibility into GTA and West GTA contribution

Our view: Great Canadian Gaming Corp. ("GC") will report Q2/18 results on August 14 after market close. We forecast Adjusted EBITDA at GC's interest of $87MM (+40% YoY). We expect investor focus to primarily be on the contribution from the GTA and West GTA bundles and any updates on redevelopment plans for the acquired facilities.

Key points:

Reiterate $61 price target and Outperform rating – Our $61 price target is based on ~9.5x our 2019E/2020E Adjusted EBITDA of $412MM.

Investor focus – We expect investor focus at Q2 reporting to be on:1) contribution from the GTA bundle for the full quarter (recall that Q1/18 reflected only ~2 months of contribution from the GTA Bundle);2) first insight into contribution from the West GTA bundle (acquisition of facilities closed on May 1, 2018); 3) any further details on the redevelopment plans for Woodbine or any of the other facilities in the GTA and West GTA Bundles; and, 4) trends at the River Rock and Hard Rock facilities during the quarter following the new regulations in British Columbia.

Forecasting Q2/18 Adjusted EBITDA of $87MM (+40% YoY) – We are forecasting net revenue of $271MM (+68% YoY) and Adjusted EBITDA at GC's interest of $87MM (+40% YoY). We expect the strong YoY growth to reflect a full quarter of contribution from the GTA Bundle, ~2 months of contribution during the quarter from the West GTA Bundle, and flattish YoY EBITDA from the British Columbia segment.

New 20 year agreements with signed with B.C. regulator for all facilities in the province – In our view, the signing of new 20-year agreements was a “stamp of approval” for GC from the provincial regulator in B.C. This announcement should eliminate any potential overhang on GC’s shares related to concerns that the company may have engaged in improper behavior that could impact its standing with the B.C./other provincial regulators as a trusted partner. Following the signing of these agreements, ~90% of GC’s 2019E EBITDA will be generated from properties that are under contract with the respective provincial regulators for 20+ years.

B.C. Attorney General releases report on money laundering – On June 27, 2018, the Attorney General of British Columbia released a report that reviewed money laundering activities in the province. The report provided 48 recommendations to combat money laundering in B.C., and many of these related to increased oversight of gaming facilities, including the establishment of an independent regulator. We expect the increased scrutiny of gaming facilities in B.C. to have some negative impact on results at the RiverRock and Hard Rock facilities and have reflected this potential impact in our forecasts.