I’m looking for a very strong Q1 from ASCA. The Street is projecting $0.32 and $78 million in EPS and EBITDA, respectively, which look too low. We believe the numbers could be as high as $0.38 and $82 million.
The loss limit removal appears to be having a greater revenue and higher margin impact on ASCA St. Charles and Kansas City. ASCA seems to have figured out the marketing fairly quickly which should be on display in the Q1 results. Importantly, they are probably only in the fourth or fifth inning of the full impact from the removal of the loss limit. Q1 should also benefit from significant cost cutting with total annualized cost savings at $45 million already achieved by Q4 2008. We estimate EBITDA margin will expand 80bps year-over-year despite flat revenues and new completion in Vicksburg, Council Bluffs, and of course, East Chicago.
There is an interesting twist to Q1 earnings. ASCA may be in the market to float some high yield bonds or extend its credit facility so there is incentive to pry open the credit markets. Recently, the company obtained a favorable amendment to raise the maximum senior leverage ratio in its covenant. The next issue they must tackle is the maturity of the credit facility in November 2010.
Gaming debt seems to trade at a discount to similarly leveraged sectors. However, the regional guys such as ASCA, PENN, BYD, and PNK are in much better shape than the Harrah’s, Station, LVS, and MGM’s of the world. Yet, there seems to be no differentiation between the better credits in the space as the taint of bankruptcies and potential bankruptcies are forcing up yields for everyone. Therein lies the incentive to post a good quarter to narrow the discount and possibly pave the way to hit the credit markets.
Look for a very good looking quarter from ASCA.