Union Gaming Research publishes company research and analysis on the global gaming industry. Our research analysts continually identify and analyze financial information and trends that affect the industry.
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November 15 2012
After the close Penn National (PENN) announced its intent to split into two companies, which would separate its tangible assets from its operations via an OpCo/PropCo (REIT) structure. This transaction appears notably accretive to valuation as it should capture the arbitrage that exists between PENN's current regional casino valuation and lodging REIT and asset-light c-corp hospitality (such as Marriott, MAR, not rated). Furthermore, a seemingly lower cost of capital for the entities should bolster free cash flow and provide for greater leverage capacity in order to further grow through acquisition and development. The dual entity structure would also enable the company to circumvent ownership limitations in various gaming jurisdictions (such as Pennsylvania). This first public gaming REIT could catalyze higher valuation in U.S. casinos, especially asset heavy operators with large domestic exposure (MGM, Buy rated; CZR, Hold rated, among others). Our PT for the PENN shares is currently Under Review.
What happened - The proposal would create a PropCo that would own the majority of the company’s hard assets and then will lease those assets to the operating company. The operating company (PNG) would operate the leased gaming facilities and own other assets such as the joint venture in Kansas, the company’s non-gaming racetracks, and gaming licenses. Current CEO Peter Carlino will assume the same role at the PropCo and Tim Wilmott the current COO will become CEO of the operating company. The company expects to file a registration statement with the SEC in 2Q13. The completion of the transaction is contingent on a number of regulatory approvals which we suspect are achievable.
November 07 2012
Gaming measures on Election Day were a bit surprising given recent polling results. Notably, Maryland passed a pro gaming ballot initiative both on a statewide basis and in Prince George’s County. The combination of a hard fought strategic campaign, high voter turnout and the potential of gaming as an economic stimulus helped garner the necessary votes in our view. As it relates to our coverage universe, the election was a negative for Penn National (PENN) and a positive for MGM Resorts (MGM) who will likely develop a casino in Prince George’s County. Elsewhere, in Rhode Island results were mixed with Twin Rivers passing table games but Newport Grand rejecting them. In Oregon, as expected the casino initiative failed handily.
Maryland (Question 7) - This morning, the Maryland Board of Elections is reporting that with all of the precincts reporting, that Question 7 passed by a 52% to 48% margin. The ballot initiative passed on a statewide basis and by a wide margin (201,417 votes for and 137,936 against) in Prince George’s County. For reference, there was only one ballot question statewide so it was a singular event for state and local approval. Maryland casinos will now be allowed to install table games at a 20% tax rate. A sixth casino license is also earmarked for Prince George’s County, which is widely expected to go to MGM.
For Penn National a National Harbor casino would be notable competition for its Charles Town West Virginia casino (~19% of our 2013 EBITDA estimate) and its existing Maryland property (Hollywood Perryville). While the casino wouldn’t open until 2016 we think the impact to Charles Town in today’s dollars is worth roughly $2.50-3.00 per share. It is unclear, what is already baked into PENN’s stock given the mixed polling data. That said, we expect PENN shares to further discount the future impact.
October 18 2012
PENN reported 3Q12 net revenues of $707.0mm (vs. our estimate of $700.5mm and Street of $711.9mm). PENN's adj. EBITDA was $168.6mm (vs. our estimate of $183.2mm and Street of $184.1mm). The miss relative to our estimate and the Street was related to $19.5mm in Maryland lobbying efforts. PENN raised its 4Q12 guidance though this was largely attributable to including the impact from the pending acquisition of Harrah’s St. Louis.
All in, it was a pretty good quarter for PENN outside of significant lobbying spending in Maryland against passage of Question 7. The Street liked the number as the stock was up 3% on the day against a roughly flat overall tape. While the spending in Maryland was likely viewed as a one-time item, additional spend will occur in the 4Q up to Election Day. PENN is historically the most active regional company with respect to lobbying and is active on the political front in a variety of markets. So it is debatable whether this should be considered a one-timer or just the cost of doing business. Next year, PENN expects more of the same in the regional gaming markets, which is flat growth in markets that aren’t impacted by new competition. We think PENN has a strong management team, solid balance sheet, and is well diversified across the US. That said, PENN faces numerous competitive challenges in its portfolio (Baton Rouge, Lawrenceburg, Charles Town, Cecil County) against a tepid overall backdrop for regional gaming. In addition, the passage of Question 7 in Maryland is a near-term potential negative catalyst, in our view. We maintain our Hold rating and $39 price target here.
October 16 2012
We recently had the opportunity to meet and tour with several properties in the greater St. Louis gaming market. In addition, we also met with management of Isle of Capri (ISLE), which is headquartered in the city. Overall, a key takeaway is we think Ameristar St. Charles and to a slightly lesser extent the Pinnacle Entertainment (PNK) properties stand to benefit over the course of the next several months as Harrah’s St. Louis unplugs from the Caesars network. There is also a perception in the market that PNK’s downtown property Lumiere Place is an unsafe area, which is consistent with our historical observations. We thought the surrounding downtown area was quite nice, though we are also not the typical Midwestern slot player.
Lay of the land - There are six properties in the St. Louis gaming market. There are four properties on the Missouri side and two riverboats in Illinois that effectively comprise the market. The Missouri casinos have a competitive advantage because they allow smoking. In recent years, Pinnacle Entertainment (PNK) has opened two new casinos in the St. Louis market. Lumiere Place opened in late 2007 and River City opened in March 2010. The President Casino, a smaller first-generation riverboat located in the St. Louis market, closed in late 2010. PNK was the licensee of this property but its license was revoked due to insufficient capital investment in the property. PNK’s Lumiere Place is located in downtown St. Louis, while the remaining properties are outside the greater downtown area. We heard several comments from people in the market that the downtown area where Lumiere is located is perceived as unsafe. There has been some recent crime in the area. However, we felt comfortable and spent some time in Laclade’s Landing an entertainment and dining district just outside the property. That said, the typical Missouri gaming customer tend to be older suburban patrons.
October 16 2012
Penn National (PENN) reports 3Q12 results before the bell on Thursday. A 10 am EDT conference call is scheduled. Our 3Q12 EBITDA estimate of $183.2mm is $0.9mm below the Street. PENN had set 3Q12 guidance of $184mm. On a property-by-property basis, we feel comfortable with our estimates heading into the quarter. The wildcard in the quarter should be corporate expense and adjusted EBITDA. We estimate that PENN has spent roughly $18mm on lobbying expenses for passage against Question 7 in Maryland. While we don’t know the amount that PENN had baked into 3Q12 guidance, we think the number is likely higher than originally anticipated and will weigh on adjusted EBITDA.
3Q12 gaming revenues not great but largely in-line - The majority of states that report monthly gaming revenues have now reported results for the whole of the 3Q12. The results were not great and reflect both the tepid overall regional gaming environment and PENN’s competitive challenges in specific markets. Gaming revenue at Lawrenceburg was down 12% in the 3Q12 to $96.7mm as the property is feeling the impact of new competition in Ohio, most notably from Scioto Downs in Columbus. In Kansas City, PENN was down 21% to $38.2mm in the quarter as the results of PENN’s JV casino on the Kansas side of the market. On a positive note, we estimate that Charles Town was down roughly 6% in the quarter pacing above our expectations. All in, we think PENN’s properties are tracking largely in-line with our estimates and management’s guidance, which has been historically conservative.
July 11 2012
As regional gaming revenue begins to trickle in for the final month of 2Q12, we thought it would be helpful to examine how the data has been tracking against our estimates. For reference, the majority of the regional gaming markets have now reported April, May, and June data. Louisiana, which is the largest market for PNK has yet to report June revenue results, the numbers typically hit around the 20th of the month. We also note that gaming win is just a single component of a property’s revenue stream, though in regional markets casino win generally accounts for the bulk of top-line revenue and is highly correlated with non-gaming results.
Penn National - PENN reports three main operating segments and doesn’t provide property specific results anymore. In Indiana, Lawrenceburg’s gaming revenue declined 7% for the 2Q12 to $110mm. In Kansas City, Missouri PENN’s property was down 24% to $37.6mm in the quarter. The rest of PENN’s properties in reporting jurisdictions were roughly in-line with our estimates. In addition, we originally modeled Hollywood Toledo opening a bit later than the actual opening on May 29, so we adjusted accordingly. All in, our EBITDA for the 2Q12 goes to $190mm from $192mm, in-line with the Street and management’s guidance. Furthermore, our 2013 estimates have increased reflecting the purchase of "Hollywood Casino St. Louis" from Caesars.
Pinnacle Entertainment - We estimate that PNK’s three properties in Louisiana account for roughly 50% of total net revenue. Following soft April trends in the state (Louisiana) we took down our 2Q12 estimates. May’s results were stronger in the state and we are still awaiting June’s results as noted above. We are comfortable with our current estimates heading into the quarter and our 2Q12 EBITDA estimate of $72mm is $2mm above the Street.
May 08 2012
We recently spoke with Penn National management on the heels of yesterday’s news regarding the purchase of Harrah’s St. Louis. Recall, yesterday Caesars Entertainment (CZR) announced an agreement to sell its Harrah’s St. Louis property to Penn National Gaming (PENN) for approximately $610mm, or 7.8x TTM EBITDA
• PENN thinks there is room for margin upside at the property. The transaction implied a TTM EBITDA of approximately $80mm. PENN thinks it could get the property up to roughly $100mm, which even without the tax benefit makes the deal attractive.
• The company has plenty of dry powder to construct the two Ohio race tracks. PENN’s low leverage (3.3x pro forma for St. Louis acquisition) will enable the company to comfortably fund their future racinos in Ohio. This is the case even without contemplating FCF and the ability to leverage acquired EBITDA.
May 07 2012
This afternoon, Penn National Gaming (PENN) announced the acquisition of Harrah’s St. Louis from Caesars Entertainment for approximately $610mm or 7.8x TTM EBITDA (6.8x inclusive of certain tax benefits). The transaction multiple (not counting the tax benefit) implies a TTM EBITDA of approximately $80mm. PENN anticipates the transaction to close in 2H2012 and for our estimates we assume a late 4Q12 closing date. We view this transaction as a positive for PENN from a strategic perspective and expect it to be slightly accretive to 2013 earnings (~$0.02 - not taking into account certain tax benefits which could be realized over several years). Upon transaction close, PENN will reflag the property under its Hollywood brand. We are supportive of PENN’s judiciously aggressive acquisition approach, which is enabling the company to take advantage of its balance sheet capacity to go after some premier assets that are available in the market. Harrah’s St. Louis casino is located along the Missouri River in Maryland Heights, Missouri (approximately 8 miles west of the St. Louis International Airport) and contains a 500-room hotel, 109,000 square feet of gaming space (2,600 slots and 85 tables) and parking for 4,644 vehicles.
May 04 2012
We find it can be instructive to review and highlight key takeaways in quarterly filings. In addition, it gives us some additional time to digest results post the frenzy of earnings season. Below are some highlights from PENN’s 10Q that we found interesting or worth noting.
Key data points - PENN ended the 1Q12 with $217.5mm of cash on the balance sheet and $1,986mm in long-term debt. In the 1Q12, PENN spent $97.8mm in capex and will spend an additional $256.1mm through the balance of 2012. We presume most of the spending is on Ohio. The company doesn’t have any debt maturities until 2016 and should have cash on hand and plenty of availability under its revolver to fund development.
Upcoming key events - In Ohio, PENN’s Hollywood Casino Toledo is expected to open on May 29, pending formal approval from the gaming commission. We expect the approval this coming week.
April 19 2012
Penn National Gaming 1Q12 recap - PENN reported 1Q12 net revenues of $736.1mm (vs. our estimate of $687.4mm and Street of $702.1mm). PENN's adj. EBITDA grew 12.8% to $200.7mm (vs. our estimate of $176.9mm and Street of $184.2mm). Reported 1Q12 EPS increased to $0.74 and was above company’s guidance of $0.56. Overall results were driven by strong performance in East/West properties which reported 28.5% growth in revenues to $370.6mm and a 32.0% increase in EBITDA to $106.0mm. The East/West results benefitted from the inclusion of M Resort, favorable weather as well as improved EBITDA margins. Midwest properties reported a 4.1% decline in revenues to $205.1mm and a 5.3% decrease in EBITDA to $63.0mm, impacted by increased competition in Illinois. The Southern Plaines properties reported a 3.5% decline in revenues to $149.7mm, while EBITDA remained flat at $53.9mm. Southern Plains region benefitted from the opening of Hollywood Kansas Speedway on February 3, 2012. EBITDA margins increased 60bps to 27.3%.
February 02 2012
Penn National Gaming 4Q11 recap - PENN reported 4Q11 net revenues of $676.5 (vs. our estimate of $668.2mm and Street of $676.5mm). PENN's adj. EBITDA grew 17.8% to $156.5mm (vs. our estimate of $166.5mm and Street of $162.7mm). Reported 4Q11 EPS increased to $0.41, but was below company’s guidance of $0.46. Overall results were driven by strong performance in East/West properties which reported 19.7% growth in revenues to $333.5mm and a 14.9% increase in EBITDA to $84.5mm. The East/West results benefitted from the inclusion of M Resort as well as from strong performance at Hollywood Casino Charles Town Races. Midwest properties reported a 1.7% decline in revenues to $192.9mm and a 5.2% decrease in EBITDA to $55.6mm. The Southern Plaines properties reported a 3.6% decline in revenues to $140.4mm, while EBITDA fell 3.9% to $42.2mm (Figure 1). PENN initiated guidance for 1Q12 and full-year 2012. For 1Q12 PENN expects net revenues and EBITDA of $682.8mm and $173.8mm, respectively. For full-year 2012, revenues and EBITDA of $2.79bn and $720.6mm. This compares to consensus estimates for revenues of $2.95bn and EBITDA of $733.8mm. Lastly, Hollywood Casino Toledo is expected to open in May 2012, while Hollywood Casino Columbus in November 2012. Both projects remain on budget.
October 21 2011
Penn National Gaming 3Q11 recap - Yesterday, PENN reported 3Q11 results. Net revenues of $710.9mm (+11.4%), were ahead of our estimate of $704.6mm and inline with Street consensus of $711.5mm. Adjusted EBITDA of $206.1mm, represented an increase of 27.2%, exceeding our estimate of $194.6mm and Street consensus of $191.8mm. EBITDA margin increased 360bps to 29.0% (from 25.4%). Reported 3Q11 EPS increased to $0.66 (versus $0.46 in 3Q10). Finally, adjusted EPS was $0.60, which beat both our estimate of $0.53 and Street consensus of $0.56. This quarter's results benefited from the inclusion of M Resort and Hollywood Perryville, while same-store revenues were up small (14 of 15 properties achieved growth). PENN continues to benefit from a rational promotional environment and improvements in cost structure, as evidenced by a 360bps EBITDA margin improvement. In addition, PENN raised full-year 2011 revenue and EBITDA guidance to $2.74bn (up from $2.73bn) and $733.8mm (up from $723.5mm), respectively. EPS was raised to $2.31 (from $2.16). Developments in OH and KS remain on track. Toledo is scheduled for a 2Q12 opening, while Columbus is scheduled to open in 4Q12, and Kansas Speedway is expected by 1Q12.
October 17 2011
UGR 3Q11 PENN estimates - For Penn National Gaming (PENN), we are forecasting total net revenues and EBITDA (post-corporate expense) of $705mm and $195mm for 3Q11 and property EBITDA of $214mm (see Figure 1 below). This compares to consensus net revenues and EBITDA (post-corporate expense) of $712mm and $191mm. We are forecasting EPS of $0.53 (versus $0.56 for consensus). PENN established 3Q11 guidance for net revenue of $704mm, adjusted EBITDA of $197mm and EPS of $0.53. Our revenue estimates are inline with company’s guidance, but our EBITDA estimate reflects a lower anticipated EBITDA margin improvement of 220bps in 3Q11 to 27.6% (vs. implicit company guidance of 28.1%). We expect PENN to outperform the overall market in Baton Rouge, Charles Town, Chicagoland (ex-Rivers), Kansas City and Sioux City markets and underperform in southern Indiana, St. Louis and Pennsylvania markets based on monthly revenue reports to-date in the quarter.
July 01 2011
Status of VLT bill reform - Earlier this week, the Ohio House passed legislation that allows racetracks to apply for VLTs. A similar provision also passed in the Senate where it was attached to a separate bill that approved the ability for operators to relocate its racetracks. The measure now awaits the signature of Gov. Kasich who is expected to sign the bill into law. The legislation will allow the state’s seven racetracks (3 thoroughbred and 4 harness) to apply to the Ohio Lottery Commission for VLT licenses. The VLT bill requires a $50mm license fee and a 33.5% tax on slot revenues. In addition, the legislation requires racetrack operators to invest a minimum $150mm in the facilities (including purchase of VLTs) with a max $25mm credit given for existing facilities and land. The new VLT deal is more favorable than what Gov. Ted Strickland proposed back in 2009, which would have required a $65mm license fee and a 50% tax rate. Racetrack operators must apply for a VLT license by June 30, 2012 or face the prospect of losing their license.
May 25 2011
Large / mid cap operators - The universe of large / mid cap operators collectively has 8.3% of its free float short (LVS 2.6%, MPEL 4.0%, WYNN 4.3%). Over the past month, short interest for the group has decreased sequentially (-5.9%), with operators: LVS +5.1%, MPEL -23.2%, WYNN +12.3%.
Regional operators - The universe of regional operators collectively has 11.1% of its free float short (ASCA 3.9%, BYD 29.2%, ISLE 5.9%, MCRI 3.1%, MNTG 0.2%, PENN 5.1%, PNK 11.6%). Over the past month, short interest for the group has decreased on a sequential basis (-3.4%), with operators: ASCA +5.3%, BYD -0.5%, ISLE -11.2%, MCRI +16.4%, MNTG +4.9%, PENN -12.5%, PNK -5.3%.
Gaming suppliers / lottery - The universe of gaming suppliers / lottery has 6.5% of its free float short (BYI 16.0%, IGT 5.8%, WMS 8.6%, SHFL 4.2%, GCA 3.1%, MGAM 4.3%, SGMS 5.8%). Over the past month, short interest for the group has increased sequentially (+7.1%), with suppliers: BYI +25.0%, IGT -6.6%, WMS +57.8%, SHFL -1.8%, GCA +16.2%, MGAM -0.8%, SGMS +6.7%.
April 12 2011
Short interest data has been released for the period ending 3/31/2011. Below, we present this data for US-listed large / mid cap operators, the regional operators and gaming suppliers / lottery.
Large / mid cap operators
The universe of large / mid cap operators collectively has 7.8% of its free float short (LVS 2.0%, MPEL 4.4%, WYNN 3.6%). Over the past month, short interest for the group has decreased sequentially (-4.5%), with operators: LVS –18.2%, MPEL -14.1%, WYNN +5.2%.
Regional operatorsThe universe of regional operators collectively has 12.1% of its free float short (ASCA 4.3%, BYD 30.5%, ISLE 8.8%, MCRI 2.9%, MNTG 0.2%, PENN 5.8%, PNK 12.3%). Over the past month, short interest for the group has increased slightly on a sequential basis (+2.9%), with operators: ASCA -0.3%, BYD -2.4%, ISLE +30.9%, MCRI +23.1%, MNTG +42.1%, PENN -0.1%, PNK +12.6%.
Gaming suppliers / lotteryThe universe of gaming suppliers / lottery has 6.2% of its free float short (BYI 13.1%, IGT 5.9%, WMS 8.5%, SHFL 4.2%, GCA 2.4%, MGAM 4.3%, SGMS 5.8%). Over the past month, short interest for the group has dropped sequentially (-1.9%), with suppliers: BYI +31.1%, IGT -8.2%, WMS -5.6%, SHFL +33.1%, GCA +5.5%, MGAM +13.4%, SGMS -27.1%.
March 25 2011
Short interest data has been released for the period ending 3/15/2011. Below, we present this data for US-listed large / mid cap operators, the regional operators and gaming suppliers / lottery.
Large / mid cap operators
The universe of large / mid cap operators collectively has 8.5% of its free float short (LVS 1.9%, MPEL 4.4%, WYNN 4.0%). Over the past month, short interest for the group has increased sequentially (+9.1%), with operators: LVS –26.6%, MPEL +23.7%, WYNN +7.6%.
The universe of regional operators collectively has 12.2% of its free float short (ASCA 4.2%, BYD 31.9%, ISLE 7.7%, MCRI 2.5%, MNTG 0.2%, PENN 6.4%, PNK 11.1%). Over the past month, short interest for the group has decreased sequentially (-1.6%), with operators: ASCA +16.3%, BYD -6.0%, ISLE +16.6%, MCRI +8.7%, MNTG +48.4%, PENN +5.6%, PNK -0.6%.
Gaming suppliers / lottery
The universe of gaming suppliers / lottery has 6.4% of its free float short (BYI 12.8%, IGT 6.3%, WMS 8.9%, SHFL 3.4%, GCA 2.4%, MGAM 4.2%, SGMS 6.6%). Over the past month, short interest for the group has increased sequentially (+5.2%), with suppliers: BYI +29.2%, IGT 0.0%, WMS +0.7%, SHFL +2.2%, GCA +9.1%, MGAM +13.6%, SGMS +1.9%.
February 17 2011
We watched a podcast of the Louisiana Gaming Control Board’s decision on the state’s 15th (and last available) gaming license which was awarded to former PNK CEO Dan Lee’s proposed $400mm Mojito Pointe casino in Lake Charles. Mojito Pointe beat out Gabriel Down’s proposed $167mm Hard Rock casino in Lake Charles and Penn National Gaming’s (PENN) proposed $150mm Hollywood casino in Harvey, LA (New Orleans market). Mojito Pointe was the largest of the three projects and its apparent ability to employ the most people and generate the largest amount of revenues for the state ultimately gave Mojito Pointe the win. If approved a local referendum passes around the April 2011 timeframe, Mojito Point would open around December 2013. Below are the key elements from the hearing.
February 03 2011
PENN reported 4Q10 results this morning. Net revenues of $630.2mm (+13.4%), slightly exceeded both guidance of $629.7mm and Street consensus of $626.5mm. Adjusted EBITDA of $150.3mm, represented an increase of 24.3% and compared to guidance of $144.0mm and Street consensus of $143.0mm. Finally, adjusted EPS was $0.30, which exceeded our estimate of $0.29 and guidance & Street consensus of $0.27.
January 12 2011
In an effort to plug the state’s ~$15b budget deficit and ~$8b in unpaid bills, Illinois’ lame-duck legislature passed a measure to raise personal and corporate income taxes early this AM. It is highly anticipated that Governor Quinn will sign the bill. As a result the corporate tax rate will increase to 7% from 4.8% which will have a direct impact to earnings of casino operators with exposure to Illinois, and the personal tax rate will increase to 5% from 3% which will have an indirect impact to casinos in Illinois and some in neighboring gaming states. While it is positive for PENN (and others) that the gaming expansion bill failed to exit the House last night, the tax increase should have a modest impact.
December 15 2010
Preamble: On December 16th, during its monthly meeting, the Louisiana Gaming Control Board will hear presentations by the three applicants for the state’s available (15th) riverboat casino license. The applicants are Penn National (for a New Orleans site), Creative Casinos (Dan Lee, former CEO of Pinnacle, for a Lake Charles site next to PNK’s L’Auberge), and St. Gabriel Downs (William Trotter, Lake Charles). Following these presentations the Board is anticipated to make its licensing decision in the first quarter of 2011. With that in mind and given the importance of Houston/San Antonio/Austin as feeders to Lake Charles we’ve revisited the prospects for the expansion of gaming in Texas in 2011.
November 10 2010
Short interest data has been released for the period ending 10/31/2010. Below, we present this data for US-listed large / mid cap operators, the regional operators and gaming suppliers / lottery.
The universe of large / mid cap operators collectively has 15.1% of its free float short (LVS 13.6%, MGM 25.3%, MPEL 2.5%, WYNN 8.5%). Over the past month, short interest for the group has declined sequentially (-11.9%), with operators: LVS -6.5%, MGM -15.8%, MPEL 23.7%, WYNN -14.0%.
The universe of regional operators collectively has 11.1% of its free float short (ASCA 5.9%, BYD 28.3%, ISLE 10.5%, MCRI 3.3%, MNTG 0.2%, PENN 3.4%, PNK 11.1%). Over the past month, short interest for the group has declined sequentially (-1.1%), with operators: ASCA -10.5%, BYD -5.8%, ISLE -5.9%, MCRI -4.5%, MNTG 60.2%, PENN 10.8%, PNK 11.5%.
The universe of gaming suppliers / lottery has 5.1% of its free float short (BYI 10.2%, IGT 4.7%, WMS 7.9%, SHFL 3.8%, GCA 2.5%, MGAM 4.0%, SGMS 4.6%). Over the past month, short interest for the group has declined sequentially (-8.2%), with suppliers: BYI -2.9%, IGT -3.1%, WMS -4.3%, SHFL -10.1%, GCA -19.7%, MGAM 0.2%, SGMS -32.6%.
October 27 2010
Short interest data has been released for the period ending 10/15/2010. Below, we present this data for US-listed large / mid cap operators, the regional operators and gaming suppliers / lottery.
The universe of large / mid cap operators collectively has 16.2% of its free float short (LVS 14.6%, MGM 26.9%, MPEL 2.9%, WYNN 9.4%). Over the past month, short interest for the group has declined sequentially (-6.8%), with operators: LVS -2.3%, MGM -10.2%, MPEL 28.4%, WYNN -9.6%.
The universe of regional operators collectively has 11.2% of its free float short (ASCA 6.3%, BYD 29.0%, ISLE 10.8%, MCRI 3.3%, MNTG 0.1%, PENN 3.5%, PNK 10.9%). Over the past month, short interest for the group has declined sequentially (-5.7%), with operators: ASCA -19.5%, BYD -7.5%, ISLE -12.2%, MCRI -10.5%, MNTG 4.1%, PENN -3.1%, PNK 4.7%.
The universe of gaming suppliers / lottery collectively has 5.4% of its free float short (BYI 9.8%, IGT 4.9%, WMS 8.0%, SHFL 4.0%, GCA 2.7%, MGAM 3.9%, SGMS 6.1%). Over the past month, short interest for the group has declined sequentially (-9.5%), with suppliers: BYI -12.2%, IGT -7.6%, WMS 4.0%, SHFL -12.8%, GCA -18.5%, MGAM -11.7%, SGMS -19.2%).
October 21 2010
PENN reported 3Q10 results this morning. Net revenues of $638.3mm ( 3%), exceeded both guidance of $622.9mm and Street consensus of $633.7mm. Adjusted EBITDA of $162.0mm, represented an increase of 12.2% and compared to guidance of $149.9mm and Street consensus of $155.1mm. Finally, adjusted EPS was $0.46, although excluding the benefit of litigation settlement and insurance proceeds, EPS was $0.36.
October 20 2010
During its first four days of operations beginning September 27th, PENN Hollywood Perryville generated $2.1mm in gaming revenue, or $346 win/day across its 1,500 slot machines. While we expect win/day to moderate over time given typically high traffic volumes surrounding the grand opening of casinos, we believe initial win/day was likely well above expectations.
October 13 2010
Short interest data has been released for the period ending 9/30/2010. Below, we present this data for US-listed large / mid cap operators, the regional operators and gaming suppliers / lottery.
The universe of large / mid cap operators collectively has 19.1% of its free float short (LVS 15.8%, MGM 38.3%, MPEL 2.0%, WYNN 10.0%). Over the past month, short interest for the group has increased sequentially ( 2.8%), with operators: LVS 9.3%, MGM -0.6%, MPEL -1.4%, WYNN 12.9%.
The universe of regional operators collectively has 11.3% of its free float short (ASCA 6.7%, BYD 30.2%, ISLE 11.8%, MCRI 3.5%, MNTG 0.1%, PENN 3.1%, PNK 10.0%). Over the past month, short interest for the group has declined sequentially (-10.0%), with operators: ASCA -15.4%, BYD -7.9%, ISLE -16.9%, MCRI -6.5%, MNTG -15.1%, PENN -18.3%, PNK -9.2%.
The universe of gaming suppliers / lottery collectively has 5.6% of its free float short (BYI 10.4%, IGT 4.8%, WMS 8.2%, SHFL 4.2%, GCA 3.0%,
MGAM 4.0%, SGMS 6.8%). Over the past month, short interest for the group has declined sequentially (-11.2%), with suppliers: BYI -4.0%,
IGT -15.9%, WMS 11.2%, SHFL -12.3%, GCA -18.8%, MGAM -13.1%,
October 08 2010
PENN announced the acquisition of all of the outstanding debt on the M Resort from the Bank of Scotland for $230.5mm. This included $670mm in bank debt (Lloyds/Bank of Scotland) and the $160mm of subordinated debt that was held by MGM, which it previously wrote down in its entirety. The property opened in March 2009 at a development cost of approximately $1.0bn.
Recall that PENN was recently licensed in Nevada via a 1% stake in a small gaming equipment supplier. Having already gone through the rigorous licensing process should enable PENN to close the transaction almost immediately.
We believe M Resort will generate EBITDA this year in the low-to-mid teens range (at substandard margin relative to the market), which would imply a transaction multiple of 13x-17x. We think most bids were in a range of $175mm-$225mm, or 10x-17x. It is highly unlikely a property of this quality / scope will be replicated in the LV locals (or any regional) market again.
October 05 2010
Today, the Maryland Attorney General, in response to a “friendly” inquiry from the Maryland Lottery, found that PENN had not interfered with the Anne Arundel gaming license. Had the ruling gone the other direction, it could have possibly violated the terms of the company’s RFP for its recently opened Cecil County project (Hollywood Casino Perryville) potentially putting that license in jeopardy.
While the AG’s decision was related to PENN’s RFP for Cecil County, we also believe there might be positive implications for the Anne Arundel gaming license. We think a finding of non-interference keeps PENN (and its Maryland Jockey Club JV partner MI Developments) in the mix should the Anne Arundel gaming license ultimately be rebid. Recall a voter referendum is being held on November 2 that could reverse the zoning decision to approve Cordish’s plans for a VLT facility at Arundel Mills Mall. Should the zoning approval be reversed by voters, the Maryland Lottery might ultimately revoke the license and begin the RFP process anew. In this scenario, we think Laurel Park (part of the Maryland Jockey Club JV) could be the likely RFP winner.
September 28 2010
Pinnacle announced an expanded scope for its Baton Rouge project which is projected to open in December 2011. The new budget has moved to $357mm from $250mm taking into account 200 hotel rooms (up from 100); 16% more gaming positions (1,857 from 1,600) – including 1,500 gaming machines (from 1,300), 51 table games, and a poker room; and a covered parking facility with 800 spaces. The $343mm funding balance is anticipated to source from cash, free cash flow, and its undrawn $375mm credit facility.
Baton Rouge gaming revenues remain above pre-Katrina levels and have grown at an average annual rate of approximately 3% since 2000. We estimate approximately $175mm-$185mm in 2010 gaming revenues (-10% to -15%) on slightly more than 2mm admissions. The market hosts Tropicana Entertainment’s Belle of Baton Rouge (gaming revenues -13% YTD) and Penn National’s Hollywood (-11% YTD). We have notable concern about the impact of a third boat in the market which to-date appears to be close to capacity. However, new supply, especially in Pinnacle’s part of the Baton Rouge market could penetrate a local and regional population that has otherwise opted for tribal or New Orleans gaming.
September 23 2010
At 7.5x our 2011 EBTIDA estimate, PENN shares are current trading at a slight discount to inline with its regional peers. This has also been the case historically with shares serially trading without a premium to its regional peers despite having the only significant development in regional gaming today relative to its peers.
We estimate that at a 100% probability of success, the value of the potential growth pipeline noted above (ex-Nevada) is up to $7 per share. We’ve modeled the potential cash flow and PENN’s share of JV earnings for each of two racetracks in OH, Laurel Park in MD and three facilities in TX. Collectively, we estimate attributable enterprise value to PENN of roughly $740mm, or about $7 per share.
September 13 2010
Short interest data has been released for the period ending 8/31/2010. Below, we present this data for US-listed large / mid cap operators, the regional operators and gaming suppliers / lottery.
The universe of large / mid cap operators collectively has 18.6% of its free float short (LVS 14.4%, MGM 38.5%, MPEL 2.0%, WYNN 8.8%). Over the past month, short interest for the group has increased sequentially ( 8.0%), with operators: LVS -2.9%, MGM 13.9%, MPEL -18.1%, WYNN 27.5%.
The universe of regional operators collectively has 12.5% of its free float short (ASCA 7.9%, BYD 32.8%, ISLE 13.8%, MCRI 3.7%, MNTG 0.1%, PENN 3.8%, PNK 11.0%). Over the past month, short interest for the group has increased sequentially ( 17.7%), with operators: ASCA 30.2%, BYD 25.0%, ISLE -6.8%, MCRI 4.4%, MNTG -17.0%, PENN 7.5%,
The universe of gaming suppliers / lottery collectively has 6.3% of its free float short (BYI 10.8%, IGT 5.8%, WMS 7.4%, SHFL 4.8%, GCA 3.7%, MGAM 4.6%, SGMS 8.3%). Over the past month, short interest for the group has increased sequentially ( 9.9%), with suppliers: BYI 3.4%, IGT 15.3%, WMS 3.5%, SHFL 2.6%, GCA 10.3%, MGAM 9.8%, SGMS 9.5%).
August 25 2010
Short interest data has been released for the period ending 8/13/2010. Below, we present this data for US-listed large / mid cap operators, the regional operators and gaming suppliers / lottery.
The universe of large / mid cap operators collectively has 17.3% of its free float short (LVS 15.3%, MGM 33.5%, MPEL 1.7%, WYNN 8.8%). Over the past month, short interest for the group has declined sequentially (-3.8%), with operators: LVS 1.2%, MGM -2.2%, MPEL -63.7%, WYNN 22.7%.
The universe of regional operators collectively has 11.5% of its free float short (ASCA 7.3%, BYD 27.9%, ISLE 14.0%, MCRI 3.6%, MNTG 0.2%, PENN 3.9%, PNK 11.1%). Over the past month, short interest for the group has increased sequentially ( 13.7%), with operators: ASCA 32.1%, BYD 15.6%, ISLE -26.0%, MCRI 4.0%, MNTG -10.2%, PENN 59.9%, PNK 10.1%).
The universe of gaming suppliers / lottery collectively has 5.7% of its free float short (BYI 9.8%, IGT 5.1%, WMS 7.0%, SHFL 4.6%, GCA 3.2%, MGAM 4.1%, SGMS 7.7%). Over the past month, short interest for the group has declined sequentially (-6.0%), with suppliers: BYI -22.6%, IGT 1.7%, WMS -10.3%, SHFL 0.1%, GCA -9.0%, MGAM -4.8%, SGMS -4.4%).
August 11 2010
Short interest data has been released for the period ending 7/30/2010. Below, we present this data for US-listed large / mid cap operators, the regional operators and gaming suppliers / lottery.
The universe of large / mid cap operators collectively has 17% of its free float short (LVS 15%, MGM 34%, MPEL 2%, WYNN 7%). Over the past month, short interest for the group has increased nominally ( 0.3%) on a sequential basis (LVS -1%, MGM 7%, MPEL -43%, WYNN -16%).
The universe of regional operators collectively has 11% of its free float short (ASCA 6%, BYD 26%, ISLE 15%, MCRI 4%, MNTG 0%, PENN 4%, PNK 10%). Over the past month, short interest for the group has declined 2% sequentially (ASCA -7%, BYD 4%, ISLE -41%, MCRI 5%, MNTG 15%, PENN 49%, PNK -7%).
The universe of gaming suppliers / lottery collectively has 6% of its free float short (BYI 10%, IGT 5%, WMS 7%, SHFL 5%, GCA 3%, MGAM 4%, SGMS 7%). Over the past month, short interest for the group has declined 13% sequentially (BYI -28%, IGT -11%, WMS -12$, SHFL 1%, GCA -11%, MGAM -6%, SGMS -10%).
July 27 2010
Short interest data has been released for the period ending 7/15/2010. Below, we present this data for US-listed large / mid cap operators, the regional operators and gaming suppliers / lottery.
The universe of large / mid cap operators collectively has 18% of its free float short (LVS 15%, MGM 34%, MPEL 5%, WYNN 7%). Over the past month, short interest for the group has increased 7% sequentially (LVS -4%, MGM 15%, MPEL 13%, WYNN -10%).
The universe of regional operators collectively has 10% of its free float short (ASCA 6%, BYD 24%, ISLE 19%, MCRI 3%, MNTG 0%, PENN 2%, PNK 10%). Over the past month, short interest for the group has increased 4% sequentially (ASCA -21%, BYD 15%, ISLE -4%, MCRI -6%, MNTG 7%, PENN -15%, PNK flat).
The universe of gaming suppliers / lottery collectively has 6% of its free float short (BYI 13%, IGT 5%, WMS 8%, SHFL 5%, GCA 4%, MGAM 4%, SGMS 8%). Over the past month, short interest for the group has declined 4% sequentially (BYI -17%, IGT -8%, WMS 4%, SHFL -9%, GCA 9%, MGAM 6%, SGMS 31%).
July 22 2010
PENN reported 2Q results today. Net revenues increased 3.0%, to $598.3m (vs. guidance of $588.3m and UGR at $589.9m). EBITDA 0.3%, to $142.2m (vs. guidance of $141.5m and UGR at $141.7m), while adjusted EPS was up 9.3%, to $0.29 (vs. guidance of $0.26 and UGR at $0.25). GAAP EPS was $0.09, and included $0.04 attributable to the termination of a police services contract in Aurora and $0.18 attributable to an impairment loss on land held for sale in Columbus (the original casino site in the arena district).
PENN issued revised guidance for the balance of 2010, implying higher-than-expected net revenues and EBITDA for 2H10 relative to the previously communicated guidance. After accounting for 2Q10 net revenue and EBITDA upside to guidance, PENN has raised 2H10 net revenue guidance by $26.2m and EBITDA expectations by $1.2m. We believe the small amount of EBITDA flowthrough is attributable to 1) the inclusion of the two OH racetracks into results (expected to have a $3.5m negative impact to EBITDA in 2H10) and 2) initial lower margins associated with new table games operations in both PA and WV.
July 21 2010
Detailed monthly gaming revenue information is available from jurisdictions that account for approximately 85% of PENN’s total revenues (or $497.1 million out of our $589.9 million net revenue estimate for 2Q10). The gross gaming revenues for PENN reported by these markets is $488.1 million, or 1.8% lower than our net revenue estimate for the properties in these markets. While this is apples-to-oranges (net revenue vs. gross gaming revenue), other revenue sources like F&B, hotel, mgmt fee income typically more than offset promotional allowances (comps). With this in mind, we feel comfortable that net revenues are actually tracking inline to slightly above our estimate of $589.9 million for 2Q.
November 30 2009
Following the abrupt resignation of Pinnacle Entertainment’s (PNK) CEO Dan Lee the company is in flux. A temporary Chairman and CEO, lack of a majority or even sizeable shareholder, potentially lingering internal debate about its development pipeline, and relatively average valuation (7.5x 2010E EBITDA versus US casinos at 9.5x) combine to make Pinnacle a ripe target for acquisition.
From our perspective Penn National Gaming (PENN) is well suited to buy PNK aided by a strong balance sheet yielding an estimated $1.6B in liquidity over the next twelve-months. There are a handful of strategically sensible reasons to justify an acquisition of Pinnacle by Penn in our view while a deal would be relevant to properties representing roughly 60% of Penn’s cash flow. Additionally, we estimate Penn can pay up to $15 / share for PNK (a 42% premium) through a mix of cash, stock, and debt assumption, while still executing an EPS accretive deal.