GC put up another strong quarter last week. The company finally seems to be executing on what should be a terrific business model.
For its Q2 reported last week, Great Canadian came in line with Street revenue but beat EBITDA expectations. EBITDA was right in line with our estimate. Given the subsequent move in the stock, investors clearly liked what they saw. As we wrote about on June 30th in “TAKEAWAYS FROM A GREAT TRIP TO VANCOUVER” and “GC: GOOD CANADIAN GAMING” on April 4th, we have high hopes for GC heading into 2010.
After a long series of disappointments, this management team has demonstrated a clear ability to adapt to a difficult operating environment. Over the last two quarters of solid performance, GC management has regained much credibility from an investor’s perspective. Great Canadian achieved $10.2MM of y-o-y cost reductions in 2Q09 with an incremental $3.6MM of cost savings recognized in the quarter, compared to the $6.6MM of savings achieved in 1Q09. GC believes that the majority of these cuts will be permanent. We’ve heard that claim many times in our sectors but, as skeptical as we are generally, we believe that in this case there was a lot of fat to cut.
The impact of the economic downturn is most visible in lower levels of slot play across the majority of GC’s properties. GC is looking to refresh their slot product in an attempt to stimulate demand. As a reminder, the British Columbia Lottery Corporation (BCLC) owns the slots and pays for their replacement. There are also some new marketing initiatives involving the opening of the Canada Line for River Rock. The completion of the Canada Line, and slot installations at View Royal and Georgian Downs, will eliminate any disruption of construction at those properties.
View Royal will add 120 slots on August 18th and Georgian Downs will add 400 slots on August 26th, followed by an additional 150 slot additions in 2Q2010. Both of these facilities are operating at full capacity on the weekends:
- We think that View Royal had an average win per day of approx $500
- Georgian Downs had a win per day in excess of $600 (we think $625)
The Canada Line will begin operating the week of August 17th and GC will complete the parkade in September, and all renovations at its property will be finished by November (2 months ahead of schedule).
Management guided to 32% EBITDA margins going forward, which was above investor expectations. If GC can meet their margin targets they will continue to beat Street estimates, which we think are too low for the rest of the year.
Property level review:
-River Rock Casino revenues were $3.3MM below our estimate and EBITDA was $1.7MM below our estimate, primarily due to low hold on table games
- Gaming revenues, including FDC funds, were 2.1MM below our projection
- Table drop was slightly better than we expected, only down 2% y-o-y, however low hold of 18.3% versus normal hold at the property of 22% negatively impacted table win by $5MM
- Slot coin in was weaker than we expected, down 16% versus our expectation of being down 10%
- Property level expenses were $1.5MM below our expectations, down 22% y-o-y
-Boulevard Casino revenues were $0.5MM lower than our expectations; however, EBITDA was a little better than we predicted due to deeper cost cuts
- Gaming revenues, including FDC funds, were in line with our expectations with weakness in both table drop and slot coin in, offset by high hold on slots which helped win by $0.9MM
-Vancouver Island Casinos’ revenues and EBITDA came in line with our expectations
- Gaming revenues, including FDC funds, were line with our expectations with weakness in both table drop and slot coin in, offset by high hold on slots which helped win by $0.6MM
- The View Royal slots aren’t coming in until August vs our estimate of 2Q09
-BC Racinos revenues were in line with our expectations with weak racing revenues offsetting slightly better gaming revenues. EBITDA was $0.6MM higher than our estimate due to lower expenses.
- Gaming revenues, including FDC funds, were ahead of our expectations by $0.4MM with strength in both table drop and slot coin in driven by the increased gaming capacity at Hastings