May 6, 2019
Great Canadian Gaming Corp
A noisy quarter, but LT story remains intact
Our view: Great Canadian Gaming Corp. ("GC") reported Q1/19 Consolidated Adjusted EBITDA of $91MM (excluding the $20.8MM impact of IFRS 16) vs. RBC forecast of $91MM.
Key points:
Our view – GC's Q1 Adjusted EBITDA was in line with our forecast; however, the results were noisy and had a number of puts/takes. Excluding the impact of IFRS 16, the much higher-than-expected revenue was partially offset by higher-than-expected expenses, driving Adjusted EBITDA of ~$91MM, in line with our $91MM forecast. Following the quarterly results, we maintain our positive long-term view on GC shares and believe that once the redevelopment is all completed, the company will generate significantly higher revenue and EBITDA. However, as the last two quarters have highlighted, the ride may be somewhat "bumpy". We have revised our forecasts to what we believe are conservative levels; however, as was the case today, there is the potential for variances across line items. The company is undertaking significant construction across the 7 GTA/West GTA facilities, and as those redevelopments are completed, there is a ramp-up period during which costs/revenues may be misaligned (costs incurred upfront while revenue builds up over time). Having said that, the company has executed well to-date, and as we noted in our last quarterly note, we are more focused on EBITDA dollars over the long run vs. EBITDA margin within the Ontario segment.
Some capacity remains on most recent NCIB – Recall that GC renewed its NCIB at the end of Q2/18 to purchase up to 4.1MM shares. Based on share repurchases to-date, the company has capacity for another ~0.5MM shares, which it can purchase between now and July 2019. We note that in calendar 2018, GC repurchased a total of 3.4MM shares at a weighted average price of $48.46 (92% of the shares repurchased in Q4/18, and shares repurchased at prices as high as $50-$51).
Estimate revisions – We have revised our forecasts to reflect: 1) the impact of IFRS 16, which was essentially all included in the Ontario segment; 2)modestly lower "underlying" margins in the Ontario segment over the next 2 years; and, 3) modestly lower table drop in BC.
Q1 revenue ahead of forecasts; Consolidated Adjusted EBITDA in- line – GC reported revenue of $312.1MM (+35.4% YoY), above RBC forecast of $260.6MM (+13.1% YoY), driven primarily by higher-than- expected contribution from the GTA and West GTA Bundle facilities, partially offset by the impact of extreme weather and construction related headwinds in Ontario during Q1 (~$17-$18MM on a consolidated basis). Q1 Consolidated Adjusted EBITDA (excl. IFRS 16) was $91MM (+2% YoY) vs. RBC forecast of $91MM.
Revising price target -$6 to $57; Reiterate Outperform rating.