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We wrote about the potential for a big quarter in our note "ASCA: INCENTIVE TO BLOW OUT Q1".  However, the quarter was even better than our most optimistic scenario.  Property EBITDA beat us at every property and increased YoY at every property, save East Chicago.  Competing with Harrah's used to be a tough business.  All together, corporate EBITDA increased 21%.  We're in a recession?




Margins were the story as revenues were just flattish.  Certainly, ASCA had an incentive to beat the quarter, as we discussed in the 4/12/09 note.  ASCA will be in the market to raise subordinated debt or extend the maturity of its credit facility.  The current credit facility expires in November of 2010.  Our thesis was that the credit markets needed to be pried open and a big quarter would be a good start.  Regional gaming credits trade at a big spread to other similarly leveraged consumer sectors because they are, well, gaming.  MGM, Station, Harrah's, etc. continue to weigh on the sector.  The "collusion" of strong regional gaming earnings releases (ASCA, PENN, PNK) could change that.


ASCA closed up 21% on the day, and rightfully so.  We are now projecting EPS and EBITDA of $1.48 and $379 million, respectively, for 2010.  We took a hack at EV/EBITDA as a valuation tool (4/20/09 - "GAMING REGIONALS:  THE FALLACY OF EV/EBITDA") since it doesn't incorporate refinancing risk or increasing cost of debt for companies with nearer term debt maturity or covenant issues.  For ASCA we've incorporated the incremental borrowing costs of a refinancing into our 2010 estimate so we will look at both EV/EBITDA and FCF yield for the stock.


After the big move in the stock and a significant hike in our EBITDA and FCF estimates, the stock looks like it is valued pretty close to perfection.  EV/EBITDA and FCF yield on our 2010 projections is 6.6x and 14%, respectively.  In the 4/20/09 note we pegged fair value at 6.9x and 15%, respectively.  Multiples could go higher and we are open to debate, but we'll sit tight for now.

Can’t Ignore These Crummy Data Points

Apparel took a nosedive in the sporting goods channel over the past week based on the latest SportscanINFO numbers. I'm quite surprised, actually, given that the trend has been so strong in the 5 weeks prior.


Can’t Ignore These Crummy Data Points - Footwear Apparel   Chart


This is not a 'sample issue' as the numbers also rolled over for footwear according to NPD (released late afternoon). The calendar lines up well - so no Easter issues, and weather does not appear to have been a major factor. The last biggie we looked for is a sample issue whereby a retailer (like Joe's, etc...) went bust and skewed the sample. But no dice on that front.


Bottom line? It was a lousy week. Period.


Can’t Ignore These Crummy Data Points - Sports Apparel Categories Table

Squeezy Eats Last: SP500 Levels, Refreshed...

We can't say that we didn't warn the shorts - now we'll make some sales into their bids to cover as we surpass this morning's immediate term call for SPX 877 and push towards my refreshed immediate term target of 881 (dotted red line). Some people call this trading - I call it proactively managing predictable risk.


Higher highs are bullish, and the levels of support that I am looking at below (green lines in the chart) are also manifesting into higher lows (bullish). Alongside a US Dollar and Volatility Index (VIX) that are breaking down, this is all good, provided that you are a buyer of down moves associated with the Swine and the Stress...


Chasing on the long side or covering your shorts up here is not what I'd be doing. Trade the range with a bullish bias. Keep it tight. Stay disciplined on your levels.


Keith R. McCullough
Chief Executive Officer


Squeezy Eats Last: SP500 Levels, Refreshed...  - sp500n

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Heli-Ben Stays At Zero

These Fed decisions used to be so much more interesting. Now all Ben Bernanke has to do is follow the herd. He is now "seeing signs of consumer spending stabilizing" - gee, thanks for the memo. After a generational short squeeze in the Consumer Discretionary stocks, it's good to see that someone over at the Fed still pays attention to prices that are being marked-to-market.


Heli-Ben's decision making process is perfectly predictable at this point. This is feeding a baby bear market in the VIX, and being long this stock market, I am cool with that. On the margin, proactively predictable behavior provides a capitalist with opportunity. Now that the man has cut to zero, the only thing left is to do is "employ all the available tools" that will ensure that the free money machines remain open for business.


In the end, this politicization of the US Federal Reserve compromises the long standing integrity of the US Dollar. And I guess, as sad it is, this will continue to REFLATE asset prices from a rational price levels.


Heli-Ben Stays At Zero - ben




- Very confident that the impressive margin trends are sustainable throughout the course of the year


- Amendment should insure compliance with debt covenants through Nov 2010


- Black Hawk Colorado - 3 important regulatory changes

  • Operate 24/7 vs 18/7
  • Increase max bet limits from $5 to $100 which will allow them to expand table games (introduce craps & roulette)
  • Hotel to open on schedule & on budget in Fall 2009 - 540 rooms


- Anticipate a slight decrease in market share in 2Q09, since last year they strategically launched a marketing campaign to gain share.  Although share may decline, margins should be better


- Transition to nimbler and stronger organization should position them well in a recover

  • Guest service shows that they are stable or improving along all metrics


- Loss limit removal in Missouri is a big net positive, even after the higher state gaming tax rate


- Amendment will cost roughly $2MM per month in incremental interest




- How much further can they improve margins/sustainability?

  • Confident that they continue to drive y-o-y improvement but unclear of what each Q's margins will be


- Confident that they can exceed past margins in Black hawk with new regulations and hotel openings


- $60MM left to spend to complete Blackhawk as of March 31, 2009

  • Will open the hotel in several stages but be 100% open by YE
  • Hotel will probably will be a little dilutive for the first few Q's will add deprecation of $1MM per month
  • They add table games and not have a big difference in slots


- ASCA no longer focuses on market share, they have a profitability strategy

  • Using their hotel in St Louis to grow profitability


- Dividend reinstatement? Thoughts?

  • Once they are done with Blackhawk they will have plenty of FCF to de-lever quickly despite dividend payments


- Would like leverage to be below 4.75x before year end 2009, ultimately they need to adjust composition of Sr debt (reduce it and issue non-sr)


- East Chicago, what drove the massive improvement in performance?

  • Horseshoe opening last fall hurt them
  • Just operating in a similar manor as the rest of their properties (New GM)


- Will average $12MM per Q on corporate excluding stock comp expense going forward


- Is the smoking ban discussion in Indiana off the table?  

  • Pretty much - today is the last day to do anything


- How much cage cash do they need to run the company?

  • Need 60-65MM of cash on hand to operate - not just cage cash though, includes working capital

Chart Of The Day: Breaking The Buck, and Shorty's Bank...

I'm more of a quantified process guy than a technician - but throw this chart onto the desk of one of those Depressionista Chartists, and ask them if they'd be long it... it looks just like Gold started to in March...


The governing factor in the REFLATION trade remains the US Dollar. As the Buck breaks down through my TREND line support level of 85.54 (thick red line), you're seeing US Equities charge to new intermediate term highs.


As much as lower highs (USD chart) are bearish, higher highs (SP500) are bullish. We all know this. We also know that volume has not been behind this rally (it hasn't been behind the market down days either), but Volatility (VIX) has been breaking down all the while - do those two factors offset one another? Good question... and one I will be delving into in the coming weeks. For now, my job as a risk manager is to manage the game that's in front of me.


For now, dollar DOWN = stocks UP, and I see risk in making this any more complicated that it really is.


Keith R. McCullough
Chief Executive Officer


Chart Of The Day: Breaking The Buck, and Shorty's Bank...  - usd1

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