Strong GH ManagementI’d like to attempt to quantify the quality of GH management.
It’s to be expected that all companies will face challenging periods from time to time. Some rise to the occasion while others pay the ultimate price: insolvency.
In the past 15 years GH management has faced the following 4 big threats:
- Great Recession from 2007 – 2009
- Collapse in oil prices that started in 2014
- Fort McMurray wildfire in 2016
- Global pandemic from 2020 to the present
Many companies would be happy simply to survive. GH has not only survived but has been consistently profitable in every single one of those years.
We were open for business during the Great Recession from 2007 – 2009 and during oil’s steep price decline that started in 2014.
We were partly closed for business during the tragic Fort McMurray wildfire of 2016 that saw some of our operations being impacted.
And then came the global pandemic that started in 2020.
Never have we seen this type of human and economic distress. We were closed for business. Almost everybody was closed for business. We had never seen this before.
GH management had to navigate very choppy waters. They had family to take care of. Employees and guests to make sure were safe and a Company to protect.
To quantify the quality of GH management I’ll focus on the 18 month period from March 31, 2020 to September 30, 2021.
Here is an unofficial timeline:
- March 17, 2020: All casinos closed
- June 19, 2020: 2 of 3 casinos reopen at reduced capacity. Limited slots. No table games.
- September 3, 2020: Table games reopen
- November 27, 2020: Table games close and 25% capacity limit for casinos.
- June 10, 2021: Casinos reopen with slots and table play at one-third of fire code capacity
- July 1, 2021: Full operations resume with only negative impact being from construction on our 2 of our casinos
So what did management do other than the above (as though that wasn’t enough)?
To begin to answer this I’d like to turn to GH’s financial statements for 3 periods:
- December 31, 2019 – last pre-Covid quarter
- March 31, 2020 – first Covid affected quarter
- September 30, 2021 – last reported quarter
Dec 31, 2019 March 31, 2020 Sept 30, 2021
Capital Expenditures $0.4M $0.1M $5.9M
Shares Outstanding 24.3M 24.1M 22.9M
Net Debt (incl. div. payable) $30.8M $32.8M $29.4M
Capital Expenditures From the above you can see that GH spent $0.4M in 2019 on capital expenditures (this is the purchase of property, plant and equipment). This is very typical of GH yearly capex spending. From 2010 to 2019 GH has averaged $0.6M in capex per year. We do not have a very capital intensive business. It generates a lot of free cash flow and that is good for us.
For the fourth quarter of 2020 (not shown above) the Company had $1.8M of capex and had $5.9M in capex (shown above) for the first 9 months of 2021. This is not typical. In fact the only
full year that showed a higher amount was in 2013 ($2.1M).
So what was going on?
Well, starting in October 2020 the Company went into construction mode and expanded Deerfoot by 7,500 square feet at a cost of $3M.
Then in 2021 GH expanded the Rivers Casino (formerly Boomtown Casino) by 6,350 square feet at a cost of net $2.5M.
So while our business was being impacted by Covid (less customers, reduced operations) GH management put the time to good use by expanding. This extra space will translate into higher revenues when Covid subsides.
Shares Outstanding You can see from the above chart that GH had 24.1M shares outstanding on March 31, 2020 (the first quarter impacted by Covid) and 22.9M shares on September 30, 2021.
The majority of these 1.2M shares were repurchased at less than $6.75 per share.
What management has done is to increase each shareholders ownership position by 4.98% (1.2M/24.1M) at a weighted average price very significantly below estimated intrinsic value.
Net Debt The last quarter before Covid hit, GH had net debt of $30.8M (see above chart). This increased to $32.8M after the first Covid affected quarter (March 31, 2020). To be expected.
What is unexpected is that for the 18 month period from March 31, 2020 to September 30, 2021 net debt fell to $29.4M. Remember our casinos were closed from March 17, 2020 and only reopened on June 19, 2020 and even then we had limited capacity. Only on July 1, 2021 were restrictions lifted and then we still had construction going on.
So what has management done during the 18 month Covid period of March 31, 2020 to September 30, 2021?
- Expanded 2 casinos by 13,850 square feet at a cost of $5.5M
- Repurchased 1.2M shares at very cheap prices thereby increasing shareholder ownership and future wealth
And - Decreased net debt by $1.4M over Pre-Covid 2019 levels.
The facts speak for themselves. We have very good management.
There is only one word to describe GH management: quality!