GOOD TO GREAT CANADIAN GAMING

Wow!  We knew management was making progress on the cost side but this exceeded our expectations by a wide margin.  Should the stock go up on this?  Absolutely.  Will it?  Yes, but probably not enough.  Even with a big move up today, the stock will likely still trade around 6-6.5x 2010 EV/EBITDA versus the US regional comp group at 7-7.5x.  An argument can be made that GC's business model is more attractive than the US guys (see our 4/5/09 note for the thesis, "GC:  GOOD CANADIAN GAMING").  GC is definitely a "show me" stock, but Q1 is definitely a start.

Revenues were a little below expectations but EBITDA bested our projection by 19% and the Street by 27%.  EBITDA margin increased 370bps YoY to 30.5% despite an 4% revenue decline.  The good news?  Most of these cost cuts appear sustainable.  Numbers are going higher, despite the revenue decline.  Here are the property details.

GOOD TO GREAT CANADIAN GAMING - GC Q1 EBITDA TABLE

For those of you who like details, the following are the conference call and property highlights:

RiverRock:

  • Gaming revenues in line with our expectation, normal hold
  • Hospitality & other revenues came in a little light, caused by the construction disruption which led to the temporary relocation of several food & beverage outlets and reduction in room capacity to 195 room from 202
  • Costs came in 1.9MM lower than our estimate, and were down 13% Y-O-Y due to reduced staffing levels and reduced variable costs

Boulevard:

  • Gaming revenues were 1% better than our estimate
    • Table drop was better than we expected, up 7% y-o-y, but hold was weak at 18.3% vs our 19.15% estimate, costing GC 300k of revenues
    • Slot handle was weaker than we expected though, down 11% y-o-y, but had slightly better win %
  • F&B and other was 26% better than our estimate
  • Costs were 8% lower than 1Q08 and 1.1MM below our estimate
  • EBITDA was up 11% and margins increased 460bps to 46%

Vancouver Island:

  • Gaming revenues came in 1.4% better than our estimate
    • Table drop was very weak, coming in 15% below our estimate, hold was 1% above our estimate. However, table revenues are only 1.3MM at these 2 properties so the hold differential was de minimis
    • Slot handle was a little better than our estimate down 4%, win % was normal
  • Hospitality and Other was materially lower than our estimate down 27% y-o-y (again very small number to begin with)
    • There was some construction disruption
  • Costs were down 20% y-o-y, much better than our estimate
  • EBITDA was up 2% and margins were up 6.2% to 57.6%

Nova Scotia:

  • Gaming revenues came in 5% below our estimate
    • Table drop a little better than we expected, hold was normal
    • Slot handle 2% below our expectation, win % was normal
  • Hospitality & other came in 200k above our estimate and 21% better y-o-y
  • Costs were in line with our estimate (remember that cost reductions at this property began in 2Q08)
  • EBITDA was up 133% and margins were 20.2% vs 8.4% last year - this is the last quarter of easy comps

Racinos:

  • Table drop increased 17% y-o-y, although hold was 2.2% below normal levels, impacting revenues by 600k
  • Hospitality and other came in 150k better than our expectations
  • EBITDA came in 22% better and margins came in 330bps better
  • In CAD dollars revenues increased 29% and EBITDA increased 44%
  • CAD dollar decline 20% in value vs USD at the end of 1Q09, if spot rates stay constant the decline should be closer to 13% for 2Q