RE:RE:RE:RE:RE:RE:RE:RE:Dividend vs NCIB - The Full StoryMalx, as always, you make some good points.
One of the things that stood out to me when I was initially studying GH back in 2020 (and I continue to study GH to this day - I'm looking deep into its history to see if I can find something of value) were your posts on the company.
I don't read the Street's research (I do my own) and I never used to read message boards and other than this one, still don't.
I had done all the work. Annual Information Forms, Proxy Circulars, MD&A's, Financial Statements, Press Releases, all from 2010 - 2019 and the first 2 quarters of 2020. I "cleaned up" the financial statements to get a more accurate view of the Company. While IFRS tries its best in standardizing financial statements, it causes more work for investors like myself who want to get an accurate view of the "real" company, and so there is more "dissecting" to do to get to the real picture.
So why did I come to stockhouse you ask?
I had formed my investment opinion about GH and I was searching everywhere I could for something that would break apart my rationale. Something that I wasn't aware of. Something that was negative. Now of course, you can't believe everything you read, and so I would take this differing opinion and try to disprove it. This is the last part of the investment process that I go through.
I found stockhouse and saw there were posts on GH. Your posts were intelligent, informed, rational and fun. My compliments!
From a prior post of yours I gleaned that you once worked at DS and so we have something in commom - industry experience. It also appears that we are both very long-term oriented. We are something of a rare breed these days.
So why do I not like acquisitions you ask?
I have nothing fundamentally against them. Heck, I am even invested in a company that has made 33 acquisitions over the past 12 years. The hard core Value guys are really criticizing me now. They are throwing virtual tomatoes at me.
The thing is that all investing is Value investing right? The present value of the discounted future free cash flow. Growth is a component of value. They are not two different things...ah I digress...more tomatoes...this time by the Growth guys and Value guys.
Yes, I do agree, GH may be able to pick up a casino at what would appear to be a statistically cheap price under the right economic circumstances - if interest rates go materially higher.
It is the quality of the asset that is to be acquired however that is more important to me than the price tag. The absolute most important thing to me, and it is a feature of all of my invetments, is the long-term competitive advantage that a company possesses. I especially like it when a company has a hidden long-term competitive advantage. You can buy the stock more cheaply when you find one of those. I am not interested in any company that doesn't have this long-term competitive advantage. This advantage results in higher margins and by being long-term, it allows for compounding to work its magic.
Are we able to acquire a casino with a great location?
A great location translates into more customers, which translates into higher margins, which translates into higher free cash flow, which translates into a more valuable business. Location is so important to me that I can't stress it enough.
I wouldn't want to go outside of Alberta to start with. We have no expertise outside of the province. We have the best spot in Calgary. We are dominant in Grande Prairie and in Fort McMurray. Location is only one competitive advantage but it is the most important one for a company like GH.
While GH is a public company, it is very much a "family business" in how it is run. I don't have a problem with that because it is well run but management does not have experience in making acquisitions. This is another animal altogether. Mistakes can be made very easily. Everybody underestimates the degree of difficulty of making successful acquisitions. It takes experience, the right thought process and the right emotional makeup.
Some will say go hire the investment bankers to come up with ideas and to do the research. You and I both know this would be a disaster. Never ask a barber if you need a haircut. The barber makes money no matter how bad a haircut you get. You have to live with the consequences.
I don't want management to be distracted by looking for acquisitions. I don't want them to take their eye off the ball. Acquisitions are not their area of expertise. No shame in that. They are good operators.
I do want management to focus all of their energy on our operations. Mr. Buffet would say there is a castle called GH and the castle is inhabitated by a King, which is management. There is a moat around the castle, which is our competiive advantage. That moat keeps out invaders, which is our competition and the job of the King is to make the moat larger and deeper everyday. Maybe throw in some crocodiles. I want management to focus on casinos and improve them, expand them, make them better and more appealing. They are good at this. They have experience in this.
Is it better to grow by acquisition, even if only once, in a sub-optimal location or expand your current facilities in a great location? I would vote for the latter. And you aren't taking any risk. No chance of an unforced error. No destorying of shareholder value and loss of compounding. If you lose 50% you must then make 100% to earn your capital back. All unforced errors that lead to losses must be avoided.
If we were owners of a business that was in decline and had a change to buy something that could be good, well that is a horse of a different color. Yes let's buy. However we own a very good business that is not in decline. A business that has a great decade coming up (and then some). I just don't want part of a business that could hurt us when we have everything we need right now.
If we have to buy something let's buy ourselves. We are so very undervalued. We will have a big return on that "acquisition".
When the pandemic turns into and endemic GH will start to prosper. The only thing we have to do is wait.
It was Blaise Pascal, French mathematician and philosopher, that said "All of humanity's problems stem from man's inability to sit quietly in a room alone".
It's hard for me to be tempted by what appears to be a sirloin steak at maybe 25% off its regular price, because the butcher is over leveraged and needs to sell some "assets", when I can eat a fliet mignon that is more than 25% off its fair price. In a situation like this, I will buy more filet mignons. I get better quality, it's probably cheaper and there are no unpleasant surprises (while the sirloin appears to be a sirloin, I will only find out if it is a sirloin after I purchase it. We will only find out if the "great" acquisitions was really "great" after we have purchased it).
It would be fun for you and I Malx to be on the BOD. Think of the long discussions we could have about the business. Give us some food and caffeine and we could talk up a storm. The Wills would go crazy because the meeting would never end :)
Maybe Bridge can get us on.