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The positive momentum should continue

 

 

Great Canadian is reporting Thursday after the close.  Barring abnormal hold issues, we think they should beat consensus.  The Street projects a sequential uptick in revenues to $97.8MM but margins down 100bps, and therefore flat EBITDA at $30.4MM.  We have 3Q09 revenues at $99.5MM and EBITDA at just over $33MM.

Local Government Share of GC's BC property revenues increased 6% sequentially for the three month period ended Sept 30, 2009.  The local share of government revenue is usually a good directional indicator for GC's results.  The completion of two projects and the opening of the Canada Line should have a positive impact on the next few quarters.  Unlike other expansion projects, View Royal and Georgian Downs were truly "capacity constrained" properties and therefore we believe that the additional slots should produce healthy ROI's.

We expect GC to continue to have positive momentum going into the 2010 Olympics, although, like everything else, GC isn't quite as cheap as when we initially turned positive on it back on 4/5/09 in our "GC: GOOD CANADIAN GAMING" post. 

2Q09 YOU TUBE

Construction/renovation commentary:

  • The completion of River Rock’s redevelopment project and the associated opening of the Canada Line will obviously assist that property.  However, in an effort to combat the slot play pressure, we are also making modifications to the gaming experience at not only these facilities but all our British Columbia casinos.
  • A more significant refresh of our gaming option is currently taking place at every one of our BC casinos.  I anticipate that this refresh, which will involve both machine replacements and conversion, will be immediately appreciated by our more frequent patrons.
  • We expect that View Royal on Vancouver Island will add 120 new slot machines on August 18th
  • We expect Georgian Downs in Ontario will add 400 machines on August 26th.  Despite that province being especially hard hit by a weakened economy, Georgian Downs’ gaming volumes have remained resilient, underscoring our belief that its market is crucially underserved.
  • Canada Line will commence operation on Monday of next week, August 17th.  By the end of September, we expect to finish construction on the associated parkade.  And in November, we expect River Rock’s own renovations, as well as the walkway connecting the facility to the station, to reach completion.
  • We’re not going to make decisions to bring things [deferred projects] back until we see very definitively that people are coming and that the existing expenditures are utilized to their maximum. And only when we’re busting at the seams and it’s absolutely clear that additional CAPEX needs to be spent, that’s when we’ll bring them back.

Guidance:

  • Go-forward ...you would expect a [EBITDA] margin of around 32 percent? 
    • Yes, that’s what we’re thinking.  We do believe the vast majority of these cost reductions are sustainable going forward and, you know, barring that things don’t get worse
  • Can just comment quickly on...what the [3Q] quarter so far looks like in terms of traffic and gaming dollars, if there’s been any improvement?  
    • It has not gotten worse, that’s for sure
  • On View Royal can you give us an idea of what the incremental costs might be for that additional gaming capacity?
    • Minimal

Operations:

  • Average spend is, again, the most significant thing that’s affected us, the first thing that we noticed and that continued on.  Visitation levels have softened a little bit but not significantly.  The biggest part is average spend.