Thelongview wrote: Thanks Cpeczek!
As you said there is no other gaming going on in Wood Buffalo and the VLT’s cannot operate there so we are very well positioned with the Rivers Casino.
We are also very well positioned in Grande Prairie. While there is some form of competition (an REC offers some VLT’s and 99 slots) it’s different from our product offering or is a good distance away from the Great Northern Casino (North-East BC has some casinos).
The most competition is with the Deerfoot. While GH’s Annual Information Form says that there are 6 casinos in Calgary, I counted a few more. I might be wrong.
The AIF says that the AGLC tries not to issue casino licenses if it erodes another casino's business but there is competition none the less. Keep in mind that not every one of our competitors has the same deep product offering that the Deerfoot has and that is a plus for us:
- 65,000 square feet
- 24 table games / 814 slots / 24 VLT’s / 10 table poker room
- Hotel (188 rooms / 14 conference rooms / water park)
- Convention facilities
- Eating and drinking
- Live entertainment, pay-per-view(4,700 square feet)
The above is all pre expansion. It is even better now.
We have a good location, in the deep south-east part of Calgary.
The Deerfoot is in Ward 12 and it is the largest Ward in the city with a population of 110,175 in 2019 (Calgary Herald – Sept 6, 2019). In 2019 Calgary’s population was 1,513,000 so 7.3% of Calgary’s population was located in Ward 12. Ward 12 also has the highest rate of population growth in all of Calgary. The closest competitor is relatively far from us. We should be pleased with the location of the Deerfoot (smart management). We are good competition to our competitors.
As for restrictions / threat of restrictions our casinos are facing, it is the same for our competitors as well. Nothing we can do about that. Business will fully come back when the pandemic subsides. Nothing we should be worried about as long-term owners. Even if forced to close it is not an issue because our cash burn rate is very low. We have incredible staying power. Good business.
Buybacks are my favorite topic. I am a huge believer in them if the stock can be purchased below intrinsic value. It is also a sign that management (I should say BOD) is very rational in its thinking.
What do I think the BOD will do? GH used to be a trust and by design would pay out a very large part of its earnings to its owners in the form of a dividend.
Nothing wrong with that at all. GH has cultivated an ownership base that seeks dividends. Heck, management are big shareholders of the Company and also like these large monthly payments. Totally understandable. Totally valid for those seeking income.
This paying of a dividend is ingrained into the corporate culture and the majority of its owners expect it. There is no question that it will not only resume but likely be higher as a result of there being less shares outstanding (thanks to those beautiful buybacks that I love).
If I were on the BOD I would wait until mid-spring to see our progress against Omicron. If the environment was good I would initiate a $0.36 dividend ($0.03 per month) starting in Q3/22. As the news got better I would increase it to $0.54 ($0.045 per month) for Q4/22 and then to $0.72 ($0.06) per month in Q1/23.
The balance sheet is strong. Based on 2019 owner earnings of $19.5M, GH has a net-debt to owner earnings ratio of 1.5 meaning GH can repay its full debt load in 1.5 years if it chooses to do so. Management has said they want a debt/EBITDA ratio of not more than 2:1. Based on current net debt levels and 2019 EBITDA of $25.7M the ratio would be 1.14:1.
Now management is very conservative (unlike most casino owners) and for this reason I believe they will wait until Q3/22 for a dividend reinstatement.
The low levels of debt that GH employs is a very big and under appreciated behavioral pattern of management. In an industry that is notorious for huge leverage, our low debt levels allow us to respond to opportunities and to economic shocks. Extreme leverage may work out most of the time but it’s that one time that it doesn’t that bits you in the behind.
We have conservative management. That’s also good for us. It is the conservatism of management that will make them wait a while before reinstating the dividend in my view. I would expect it to be reinstated in the second half of 2022 unless Omicron or another variant decides not to cooperate.
What would I like to see?
The most important thing by far that a CEO has to do is the proper allocation of capital. This makes a gigantic difference in the wealth of its owners over time. Thers are only 5 choices when capital is being allocated:
- Reinvest funds in your operations
- Acquisitions
- Pay down debt
- Pay a dividend
- Buy back stock
GH has reinvested a lot in itself over the past 18 months. Acquisitons will likely not happen. Debt is at low levels. You are left with the last 2 options of paying a dividend or buying back stock.
In my view the repurchase of stock
below intrinsic value creates the most shareholder wealth over time.
I would like the Company to buy back as many shares as possible under $8.00 and not to pay a dividend. This $8.00 level is well below intrinsic value. It would be a no-brainer in my view. If the stock eventually trades above intrinsic value, I would be very open to a dividend at that time.
In this discussion of to buy back or to pay a dividend, my view is totally unimportant. The only important view is that of the BOD. We will
wait. As a very smart person said:
“How do you turn a $150mm business into a $400mm business?
Wait”