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With capital projects behind it, potential earnings upside, and a solid balance sheet, Great Canadian appears to have a favorable set up in front of it.  Q4 is next on the docket.

 

 

Great Canadian is scheduled to report its 4Q09 results after close this Monday, and we believe they will once again beat expectations.   More importantly, we think that consensus numbers for 2010 are reasonable.  Going forward, all of the projects are either completed or wrapping up and the balance sheet should remain in great shape.  All Great Canadian needs to do it simply operate their properties.

We think Great Canadian will report $32.3MM of EBITDA on $97MM of revenues, compared to consensus expectations of $31MM of EBITDA and revenues of $96.25MM.  Canadian provinces don’t report monthly gaming numbers like most states in US, but the BCLC does put out a quarterly report of payments it makes to local governments representing their stated share of casino and community gaming centre revenues.   While it hasn’t been “spot on,” the BCLC numbers have been a good directional indicator on trends at GC’c British Columbia casinos (see charts below).  According to the 4Q09 data, 6 of the 7 BC-located Great Canadian properties showed material sequential improvement in y-o-y trends and 3 of the properties had y-o-y revenue increases.

This quarter’s results should benefit from the recent slot refresh, completion of expansion projects at River Rock, View Royal and Ph1 at Georgian Downs, and better weather comparisons, as December 2008 had severe snowstorms.  While all of this sounds very “bullish”, we’re under no delusion that things are rosy in Canada and that GC’s customer is in recovery mode. Despite all the positives, we’re projecting less than 1% growth in y-o-y revenues.  However, when you combine that with massive cost reductions, some pretty good results should be in the wings for GC.  The stimulus pumped into the Vancouver economy from the Olympics won’t hurt 1Q2010 results either.

4Q09 DETAIL

 

River Rock: $30.7MM of revenues and $14.3MM of EBITDA

  • The Canada Line, walkway opening, expanded parking, slot refresh, and the end of construction disruption should produce a lift in revenues at River Rock.  According to the Local share data, monies paid to Richmond (where RR is located) increased 17% y-o-y. 
  • Easy weather comparisons should also make for healthy increases in 4Q09. In Dec 2008 revenues plummeted 23% y-o-y compared to a 6% average decline in October & November 2008. 
  • We’re projecting gaming revenues of $23.6MM and $7.1MM of hospitality revenues. 
    • Table revenues up 12% assuming a 3% increase in table drop and 22% hold. Table hold in 4Q08 was 20%, which is 1.6% below the properties’ nine-quarter average. 
    • 12% increase in slot win assuming a 10% increase in slot handle, which was down 17% last year.  
  • Operating expenses (including promotional expenditures) down 18%  y-o-y to $16.4MM. Operating expenses were down 26% y-o-y in 3Q09 

GC: POTENTIAL 4Q09 UPSIDE - River Rock 

 

Boulevard: $17.0MM of revenues and $8.3MM of EBITDA

  • We’re projecting gaming revenues of $14.4MM and $2.6MM of F&B revenues 
    • Table revenues down 6% assuming a 1% increase in table drop and 20.6% hold. Table hold in 4Q08 was 22.2%, above properties’ nine-quarter average of 19.4% 
    • 4% decrease in slot win assuming a 8% decrease in slot handle and 7% win, compared to 6.7% win last year  
  • Operating expenses (including promotional expenditures) down 14% y-o-y to $8.8MM compared to a 15% decrease to $8.6MM in 3Q09 

GC: POTENTIAL 4Q09 UPSIDE - Boulevard

 

Vancouver Island: $10.7MM of revenues and $6.24MM of EBITDA

  • In August 2009, View Royal’s gaming expansion was completed, adding 120 slots. However, there was also construction disruption in the third quarter. 
  • The Local Share data implies 5% increase at View Royal, offset by a 4% y-o-y decline at Nanaimo
  • We’re projecting gaming revenues of $9.8MM and $0.9MM of F&B revenues
    • Table revenues down 13% assuming a 5% decrease in table drop and 23.5% hold.  Table hold in 4Q08 was 25.8%, 230bps above properties’ nine-quarter average.
    • 6% increase in slot win assuming a 3% increase in slot handle and 7.25% win, compared to 7% win last year
  • Operating expenses (including promotional expenditures) down 12% y-o-y to $4.4MM compared to a 18% decrease to $4.3MM in 3Q09

 

GC: POTENTIAL 4Q09 UPSIDE - Vancouver island casinos

Nova Scotia Casinos: $9.7MM of revenues and $2.4MM of EBITDA

  • We’re projecting gaming revenues of $9.5MM and $1.35MM of F&B revenues 
    • Table revenues down 7% assuming a 1% decrease in table drop and 19.2% hold. Table hold in 4Q08 was 20.4%, 140bps above properties’ nine-quarter average 
    • 1% increase in slot win assuming a 4% decrease in slot handle  

 

Other:

  • Georgian Downs should benefit from its slot expansion which added about 350 slots in August.  We’re projecting $2.8MM of revenues from gaming at Georgian Downs, compared to $3MM in the 3Q09 (which is typically a seasonally stronger Q)  
  • Great American Casinos will benefit from a strong Canadian Dollar for the first time in 2009.  The Canadian Dollar strengthened 14% against the dollar in 4Q09 compared to 4Q08.  At current rates, the Canadian dollar is 9.6% stronger than the FX rate in 2009.  For 4Q09 we’re expecting $6.2MM of revenues and $0.8MM of EBITDA at the Great American Casinos