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Search Within
Pinnacle Entertainment (PNK): Upgrading to Hold on accretive Ameristar deal
December 27 2012
Summary of the terms and thoughts - Pinnacle will acquire all of the outstanding common shares of Ameristar for $26.50 per share (20% premium to prior close) in cash, for a total EV of $2.8bn, including debt of $1.9bn and cash on hand of $116mm as of 9/30/12. The consideration represents an EBITDA multiple of 7.6x ASCA’s adjusted LTM EBITDA of $365mm for the period ending 9/30/12. PNK expects to achieve synergies (corporate and property level) of at least $40mm annually and for the acquisition to be accretive to FCF and EPS. The deal is expected to close by the end of 3Q13. We don’t think obtaining state approvals will be a major hurdle. In addition, there doesn’t appear to be state level regulatory obstacles with respect to having multiple licenses in Missouri or Louisiana.
Rationale for Upgrade of PNK shares - We are upgrading the PNK shares to Hold from Sell due to the announced acquisition of Ameristar. We are raising our price target to $15. Strategically the deal makes sense given Pinnacle’s core competency (U.S. Regionals) and geographical exposure, it appears nicely accretive to EPS (even without synergies) with only modest creep in leverage, and it reduces Vietnam risk on a relative basis, which underscored our former Sell rating. With the ASCA shares trading approximately at deal price, the market is seemingly suggesting there may be another bid(s), which would present a risk for the PNK shares at current levels. We believe an additional bid(s) is less probable but possible and we outline our thoughts in greater detail in this report.
Pinnacle Entertainment (PNK): Major issues with Vietnam project announced; Reiterate Sell rating
November 12 2012
Pinnacle disclosed multiple issues with its Vietnam project that puts its investment at risk, and that could prompt it to deploy additional capital in our view (Pinnacle has funded $109mm to-date). Below we outline the multitude of new issues and provide a summary of our October 8, 2012 downgrade of the PNK shares for reference as our downgrade was entirely a function of Vietnam concerns.
1. The project entity is in default of its Phase 1 completion deadline(s), which are outlined in the original Investment Certificate granted by the Government of Vietnam. As a result the Ho Tram project will not be awarded gaming approval until an amendment to the Investment Certificate is granted by the Government of Vietnam. This process has reportedly been slow and its timing and certainty are currently unclear.
2. The noted default has resulted in funding issues for Phase 1 of Pinnacle’s Ho Tram project. In particular, the project’s $175mm credit facility from a syndicate of Vietnamese banks has suspended the undrawn credit line. The former availability of USD96mm is needed in order to fund remaining construction (which we estimate represents ~22% of hard and soft costs). Construction may cease near-term unless an alternative source of funds is secured.
3. Additionally, the project has yet to secure a working capital facility which was originally estimated at USD35mm. The noted default impacts the ability to secure these funds as planned. Furthermore, it has been determined that the USD35mm is too low and the magnitude of additional working capital is currently unclear.
4. Pinnacle further disclosed that delays in establishing regulatory protocols could delay gaming operations at Ho Tram. This of course is moot for the moment given the aforementioned default and funding issues.
Pinnacle Entertainment (PNK): 3Q12 Earnings Preview; Tweaking estimates, expecting in-line quarter
October 22 2012
Pinnacle Entertainment (PNK) reports 3Q12 results before the bell on Wednesday. A 10 am EDT conference call is scheduled. We are slightly lowering our 3Q12 EBITDA estimate as all of PNK’s operating markets have now reported 3Q gaming revenue results. Note, we were a bit higher than the Street and now our estimates are largely in-line with current consensus. For reference, PNK doesn’t provide quarterly guidance. For the 4Q12, we are also increasing our estimates due to a stronger than expected performance out of the gate for Baton Rouge. Overall, we expect a largely in-line quarter from PNK reflecting the overall challenging backdrop of the regional gaming markets.
3Q12 gaming revenues slightly below our estimates - The states that report monthly gaming revenues have now reported results for the whole of the 3Q12. The results were largely mixed for PNK. In Louisiana, L’Auberge Du Lac reported $92mm in gaming revenue which was flat. The results in Missouri were mixed, with Lumiere Place reporting a decrease of 6% in gaming win to $40.9mm, while River City was up 6% to $53.1mm. In Southern Indiana, Belterra was down 2% to $38.5mm. In Baton Rouge, the property reported $13.3mm in September, which was above our initial expectations. However, margins are typically low out of the gate as casinos typically market through the opening and overstaff, therefore it can take a few months to reach a normalized level.
Pinnacle Entertainment (PNK): Downgrading to Sell on additional Vietnam risks, lowering estimates an
October 08 2012
There are a number of challenges at Ho Tram presenting significantly more risk to PNK’s return profile in Vietnam - We are downgrading PNK to Sell from Hold, lowering our price target to $10, and reducing our 2013 EPS estimates. Detailed below, we forecast a 3% ROI for Vietnam, well below that of Pinnacle’s 8% WACC. This is in contrast to management’s recently reiterated capital deployment thresholds and is representative of value destruction in our view. In fact, we believe its capital deployment filter fails on all three of its thresholds as it relates to Ho Tram. 1) Its EBITDA return will be below 15% in our estimation; 2) its ROI is notably below its WACC, not its self-imposed 300 bps higher (which is too small of a mandated premium anyway when contemplating country and development risk in a communist territory); and 3) capital wasn’t secure before the beginning of construction (or its contingency was far too small and change orders too great). Importantly, there are other factors that present increased risk for PNK’s investment from our perspective, and could catalyze further revisions to our Vietnam estimates. These include 1) withholding tax on winnings in Vietnam, 2) the lack of a final Gaming Decree resulting in a default to more stringent Nevada regulatory standards, and 3) a power grid that raises questions about the ability and cost to bring sufficient power to the Ho Tram site in the necessary timeframe. While a prohibition on locals gambling is well documented and its manager, MGM, will be disincentivized to drive notable VIP volume to Ho Tram, these challenges are already reflected in our forecasts.
Pinnacle Entertainment (PNK): 2Q12 Earnings recap; solid quarter
July 25 2012
PNK reported strong 2Q12 results that topped our estimates and consensus expectations. The beat was both on the top-line and in EBITDA. In particular, we saw strong results out of L’Auberge and the St. Louis properties. The solid numbers out of L’Auberge weren’t that surprising, given the reported growth in the tail end of the second quarter at the property. Concurrently with the release, the company made a number of announcements including authorizing a $100mm share repurchase, setting a grand opening date of August 29 for L’Auberge Baton Rouge, announcing plans for a hotel tower at Boomtown New Orleans, and most notably providing some detail on funding Asian Coast Development in Vietnam.
All in, PNK generated solid 2Q12 results, which is all the more impressive given the backdrop of muted growth in the regional markets during the quarter. That said, management did comment that trends in the first few weeks of July were off to a slow start. The company also tried to assuage concerns over funding issues in Vietnam, entering into an agreement to provide an additional $15.6mm as part of an overall $60mm equity capital raise, proportionate to its original equity percentage share. This leaves about $44mm of equity funding for its equity partners and $35mm in to-be-raised working capital credit. We are comforted that the company's equity funding is contingent upon the balance of the raise, while questions remain about its partners' ability to fund. PNK is a solid operator and we note that growing revenue, market share, and margin in this environment is not easy.
Looking at 2Q12 regional gaming trends
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.
Pinnacle Entertainment (PNK): Reducing estimates on soft April revenue trends
May 18 2012
On the heels of April’s various jurisdictional data and most recently Louisiana’s results, we are reducing our 2Q12 estimates for PNK by 3% for revenue/EBITDA and EPS by roughly 10%.. For reference, PNK’s three Louisiana riverboats account for roughly 50% of our 2012 revenue estimate and 57% in 2013. While typically we don’t like to read too much in a month’s worth of data, we think that soft results in April will put a greater burden on PNK to outperform in May and June. For reference, following L’Auberge du Lac’s (-8.0%) April performance, May and June results would have to reach double-digit gains in revenue to get to our prior estimate, and close to consensus, which we believe will be difficult. The weakness wasn’t just confined to Louisiana, as revenue trends were relatively weak across the board in April in St. Louis (34% of PNK 2Q12 revenue) and Southern Indiana (14% of PNK 2Q12 revenue). The calendar in April was negatively impacted by having one fewer Friday and Saturday. In Louisiana and for most regional markets gaming revenue is a good proxy for net revenue. Looking at historical patterns, gaming revenue generally is pretty close to net revenue, or to put it another away, non-gaming revenues are for the most part offset by promotional allowances.
Pinnacle Entertainment (PNK): 10Q Review; Filing reveals Vietnam funding gap
May 11 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 PNK’s 10Q that we found interesting or worth noting.
Key data points - PNK ended the 1Q12 with $255.7mm of cash on the balance sheet and $1,442mm in long-term debt. In the 1Q12, PNK spent $66mm in capex with the bulk of that related to Baton Rouge, which is expected to open by Labor Day 2012.
Vietnam Funding - A key risk outlined in the 10Q relates to development funding concerns for PNK’s minority owned casino resort in Southern Vietnam. The project has a funding gap that will require additional capital according to the filing. While we believe PNK’s balance sheet can handle a significant funding gap, presuming the project’s equity sponsor is unable, this still would seemingly present a valuation question related to its original 26% stake. This suggests PNK may either notably increase its risk profile with more capital in Vietnam or adjust the carrying value of its initial stake. For reference, In May 2011, Pinnacle Entertainment acquired a 26% equity interest in Asian Coast Development Ltd. (ACDL), which is currently developing the Ho Tram Strip in southern Vietnam, approximately 80 miles southeast of Ho Chi Minh City. PNK invested approximately $95mm for a JV stake in ACDL and also received a management contract through 2058 (with a potential 20-year extension) to manage the second integrated resort on the Ho Tram Strip. ACDL is developing the Ho Tram Strip in multiple phases (five separate resorts) and is partnering with various financial investors.
Pinnacle Entertainment (PNK): 1Q12 Earnings recap
May 01 2012
PNK reported strong 1Q12 results that topped our estimates and consensus expectations. The beat was driven by the combination of solid top line results and a reduction in operating costs in St. Louis, Lake Charles, and Belterra. In Lake Charles, L’Auberge had record levels of a variety of gaming metrics including gaming revenue, slot win, and table drop. The New Orleans and Bossier properties underperformed related to an increasingly competitive promotional environment. Overall, it was a good 1Q12 print for PNK as the company has managed its operating costs and some growth is starting to reappear in the regional gaming markets. The regional markets appear to be getting better and starting to show some growth. On the margin side, PNK has been focused on cutting costs and driving operational efficiencies. We like shares of PNK given the valuation, development pipeline, and the margin story. We do remain a bit concerned about the return potential of the Baton Rouge project.
Pinnacle Entertainment (PNK): On its front foot balance sheet-wise
March 05 2012
This morning, PNK announced a proposed offering for a new $250mm term loan due 2019 (could be accelerated to 2014 or 2015 depending on tender offer) as well as $250mm of new senior subordinate notes due 2022. In addition, PNK launched a cash tender offer for $385mm of its 7.5% senior subordinated notes due 2015 ($372mm outstanding). The proceeds from the term loan as well as the new senior subordinate notes will be used to redeem 7.5% senior subordinate notes due 2015 as well as to pay down the outstanding balance under the revolving credit facility ($56mm).
Pro forma Balance Sheet - Pinnacle ended full-year 2011 with Adj. EBITDA of $264.3mm, estimated total debt of $1.24bn and net interest expense of $95.6mm, resulting in full-year 2011 leverage of 4.6x and coverage of 2.8x. Total estimated senior debt was $490.9mm, bringing full-year 2011 senior leverage to 1.9x. Pro forma for the offering and the subsequent tender of the 7.5% senior subordinate notes due 2015, we estimate total debt of $1.30bn, resulting in pro forma leverage of 4.9x. In addition to the tender, PNK is seeking amendments to the notes that would remove all of the restrictive covenants, which could help PNK execute on any future Greenfield developments or acquisitions if appropriate.
Vietnam casino development - In May 2011, Pinnacle Entertainment acquired a 26% equity interest in Asian Coast Development Ltd. (ACDL), which is currently developing the Ho Tram Strip in southern Vietnam, approximately 80 miles southeast of Ho Chi Minh City. PNK invested approximately $95mm for a JV stake in ACDL and also received a management contract through 2058 (with a potential 20-year extension) to manage the second integrated resort on the Ho Tram Strip. ACDL is developing the Ho Tram Strip in multiple phases (five separate resorts) and is partnering with various financial investors. The first integrated resort on the Ho Tram Strip is currently under construction and on pace to open in 1Q13.
Pinnacle Entertainment (PNK): 3Q11 Earnings recap and Initial thoughts
October 27 2011
3Q11 recap - In 3Q11, Pinnacle reported a 7.2% increase in net revenues to $295.9mm (compared to our estimate of $310.0mm and Street consensus of $301.3mm). Adjusted EBITDA for the quarter grew 16.3% to $68.7mm, while adjusted EPS was a gain of $0.23 per share (versus a gain of $0.08 in 3Q10). PNK’s reported Adj. EBITDA was slightly below our estimate of $70.0mm and inline with Street consensus ($68.5mm). 3Q11 results were driven by improvements in margins (EBITDA margin +180bps) combined with strong EBITDA performance at L’Auberge du Lac (+24.3% y/y) and combined St. Louis properties (+30.2%). PNK’s 3Q11 results were impacted by the several-day closure of Boomtown New Orleans over Labor Day (tropical storm Lee) and some one-time medical expenses at Belterra and River Downs that contributed to a 276bps drop in EBITDA margin. Adjusting for Boomtown New Orleans and Belterra one-time items, adj. EBITDA would have increased 19.2% to $70.4mm. Continued growth and reduction in operational costs at PNK’s L’Auberge and St. Louis properties is offsetting top-line declines at PNK’s other properties.
Pinnacle Entertainment (PNK): 2Q11 Earnings recap; Raising estimates
August 04 2011
2Q11 recap - In 2Q11, Pinnacle reported a 9.3% increase in net revenues to $299.1mm (compared to our estimate of $293.2mm and Street consensus of $290.4mm). Adjusted EBITDA for the quarter grew 39.9% to $69.1mm, while adjusted EPS increased to $0.17 (versus a loss of $0.33 in 2Q10). PNK’s reported Adj. EBITDA was ahead of our estimate of $60.0mm and exceeded Street consensus ($61.0mm), while adj. EPS of $0.17 beat both ours ($0.03) and Street consensus ($0.05) estimates. 2Q11 results were driven by improvements in overall operating margins (EBITDA margin +500bps) combined with strong EBITDA performance at L’Auberge du Lac (+38.5% y/y) and combined St. Louis properties (+59.3%). The upside in the quarter resulted from a greater improvement in revenues at L’Auberge du Lac, helped by a strong growth in non-gaming revenues, higher EBITDA margins (+500bps vs. our forecast of +230bps) and a lower corporate expense. Overall, a very good quarter for PNK as the company continues to streamline operational costs and reduce overall marketing expenses (-80bps in 2Q11).
Pinnacle Entertainment (PNK): 2Q11 Preview
July 29 2011
We are forecasting total net revenues and EBITDA (post corporate expense) of $293mm and $60mm for 2Q11 and property EBITDA of $69mm. This compares to consensus net revenues and EBITDA (post corporate expense) of $290mm and $61mm. We are forecasting EPS of $0.03 (versus $0.05 for consensus). Our marginally higher revenue estimates relative to consensus presumably captures better monthly results in Lake Charles market and our EBITDA estimate takes into account 230bps improvement in margins due to the benefit of operational efficiencies.
PNK acquires equity interest in Vietnam casino development
May 26 2011
Transaction Details - Pinnacle Entertainment has entered into a strategic agreement to acquire a 26% equity interest in Asian Coast Development Ltd. (ACDL), which is currently developing the Ho Tram Strip in southern Vietnam, approximately 80 miles southeast of Ho Chi Minh City. PNK will invest approximately $95mm for a JV stake in ACDL and will also receive a management contract through 2058 (with a potential 20-year extension) to manage the second integrated resort on the Ho Tram Strip. ACDL is developing the Ho Tram Strip in multiple phases (five separate resorts) and is partnering with various financial investors. The first integrated resort on the Ho Tram Strip is currently under construction and set to open in 2013.
Our thoughts on economic impact for PNK - Assuming a typical management contract (2% of revenues and 5% of EBITDA) and a healthy return profile of 25%+ (management expects gaming tax rate to be favorable and closer to that of Singapore than Macau), we estimate PNK’s management fee income from the second integrated resort could be in the range of approximately $13mm to $16mm in 2015 dollars. In addition to the management contract, PNK will be eligible to receive income share from ultimately all five of ACDL’s gaming and non-gaming properties on the Ho Tram Strip.
Pinnacle Entertainment (PNK): 1Q11 Preview
April 26 2011
We are forecasting total net revenues and EBITDA (post corporate expense) of $295mm and $62mm for 1Q11 and property EBITDA of $71mm. This compares to consensus net revenues and EBITDA (post corporate expense) of $290mm and $60mm. We are forecasting EPS of $0.06 (versus $0.05 for consensus). Our marginally higher estimates relative to consensus captures better monthly results across Louisiana and Indiana jurisdictions coupled with higher margins resulting from continued improvements in operational efficiencies.
Short interest down marginally for large gaming operators and suppliers
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%.
Short interest up for large gaming operators and suppliers
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%.
Regional operators
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%.
Pinnacle Entertainment (PNK): 4Q10 Recap
February 24 2011
Pinnacle reported 4Q10 net revenues of $274.0mm (+18.5%), adjusted EBITDA of $50.4mm (+125.9%) and adjusted EPS loss of $0.01. Adjusted EBITDA of $50.4mm was slightly better our estimate ($48.6mm) and a touch below Street consensus ($51.0mm), while adj. EPS of a loss of $0.01 beat our estimate (- $0.11) and Street consensus (-$0.08). 4Q10 results were driven by improvements in overall operating margins, combined with solid revenues at L’Auberge du Lac (+8.5%) and Boomtown New Orleans (+14.8%). Revenues at the combined properties in St. Louis were below expectations, while management’s dismissive view on Mojito Pointe and a delay in Baton Rouge seemed to collectively drive the shares lower (-4.3%).
Pinnacle Entertainment (PNK): 4Q10 Preview
February 23 2011
We are forecasting total net revenues and EBITDA (post corporate expense) of $269mm and $49mm for 4Q10 and property EBITDA of $57mm. This compares to consensus net revenues and EBITDA (post corporate expense) of $276mm and $51mm. We are forecasting an EPS loss of $0.11 (versus a loss of $0.08 for consensus). Our lower estimates relative to consensus presumably capture jurisdictional results that reflect weaker tracking in St. Louis. This is somewhat offset by further traction in margins resulting from continued improvements in operational efficiencies.
Louisiana’s 15th license decision tomorrow – Material risk to PNK
February 16 2011
Louisiana will render a decision on the state’s 15th (and last available) gaming license on February 17th which was previously held by Pinnacle Entertainment (PNK) prior to the cancellation of its Sugarcane Bay project in Lake Charles. There are three applicants gunning for the license: former PNK CEO Dan Lee is proposing the $400mm Mojito Pointe casino in Lake Charles; St. Gabriel Downs LLC is proposing a $167mm Hard Rock branded casino in Lake Charles; and lastly, Penn National Gaming (PENN) is proposing a $150mm Hollywood casino in Harvey, LA (New Orleans market). Due to views related to funding, the market believes PENN has an edge. We do not. It should be noted that the ability for Revel in AC to secure funding suggests higher probability that green-field development in Lake Charles can be funded.
Illinois Gaming Expansion, Today or Bust
January 11 2011
As an update to our recently published note on Illinois gaming expansion we provide the following important highlights: 1) it’s today or bust for the House’s 2nd and 3rd reading/passage, and the Senate’s acceptance of literally every amendment; 2) given the diminishing time for passage (today), it appears unlikely; 3) the Governor’s signature can happen after today; and 4) if the Governor vetoes (and he has been visibly skeptical about such a large gaming bill) the legislature will be unable to override it and the bill will die – unlikely to be re-introduced in 2011.
Gaming short interest down for operators and suppliers
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%.
Pinnacle Entertainment (PNK): Post 3Q10 conference call thoughts; updating estimates
October 28 2010
Pinnacle reported 3Q10 net revenues of $287.8mm ( 14.9%), adjusted EBITDA of $60.2mm ( 46.8%) and adjusted EPS of $0.10. Adjusted EBITDA of $60.2mm beat both our estimate ($48.9mm) and Street consensus ($51.5mm), while GAAP EPS of a loss of $0.01 beat our estimate (-$0.16) and Street consensus (-$0.12). 3Q10 results were driven by improvements in overall operating margins, combined with strong results from the combined properties in St. Louis (revenues 66%) helped by the continued ramp up of the River City casino (opened March 4th, 2010).
Short interest down for operators and suppliers
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%).
Short interest up for big cap operators, down for the rest
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%,
SGMS -17.9%).
Pinnacle Entertainment (PNK): Pinnacle expands Baton Rouge scope; updated thoughts on market
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.
Short interest up for both operators and suppliers
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%,
PNK 10.3%.
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%).
Short interest flat sequentially for operators and down for suppliers
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%).
Short interest flat sequentially for operators and down for suppliers
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%).
Pinnacle Entertainment (PNK): Shifting gears; post 2Q conf call thoughts & new estimates
July 29 2010
Pinnacle reported 2Q10 net revenues of $273.6mm ( 2.7%), EBITDA of $49.4mm ( 0.9%) and an adjusted EPS loss of $0.14. Adjusting EBITDA for severance and office consolidation costs of $2.8mm, EBITDA of $52.2mm beat both our estimate ($51.5mm) and Street consensus ($50.6mm). GAAP EPS was a loss of $0.81 and included a number of charges that primarily related to the cancellation of its SugarCane Bay development in Lake Charles. Presented in Figure 1 below is a 2Q10 recap at both the corporate and property levels.
Under new CEO Anthony Sanfilippo, the company is focusing its efforts on operations while largely ceasing to be in a broader development mode.
- At the operating level, PNK is addressing its casino floors by changing its slot machine mix to more optimal levels. It is also revamping its system-wide player loyalty programs and hotel yield-management systems. The end result should be an increase in revenues from its more profitable customers.
- Operating margins should trend up as PNK manages its staffing levels across all properties (or finds efficiencies by putting the operations of both St. Louis properties under one team), centralizes procurement and realizes other general efficiencies.
- PNK is putting certain assets and projects in the rear view. It has sold or is selling (primarily) non-core assets in Argentina; St. Louis (President Admiral); Atlantic City (land); and aircraft. It is also walking away from its development in Lake Charles.
- The balance sheet is in good shape and its recent debt offering resolved the company’s only near term (2012) maturity issue.
Short interest up sequentially for operators and down for suppliers
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%).
Pinnacle Entertainment (PNK): Focus on margins and marketing; updating estimates
June 02 2010
We recently met with Pinnacle Entertainment and discussed the company’s strategy under new CEO Anthony Sanfilippo. It is clear that the company will focus on improving property-level margins and hone its marketing strategies on several levels.
PNK believes that property-level margins can be raised notably from current levels (20% in 2009). We believe that a ballpark target for the company is several hundred basis points. There would appear to be some low-hanging fruit that can immediately translate to improved margins at the property level. For example, at L’Auberge in Lake Charles, the slot / table mix could be adjusted to have a greater focus on higher-margin slots. We do not believe the mix has been adjusted since the property opened in 2005 and a mix shift could drive margins closer to 30% from the mid-20% range today. In Reno, the company’s Boomtown (EBITDA loss of $2.6m in 2009) could be a target for conversion to a slots-only operation, eliminating higher-cost tables in a very tough market.
Atlantic City Almanac 1978-2009: Everything You Need to Know
May 13 2010
Given a confluence of factors we are publishing this deep-dive into the Atlantic City market. This report is intended to be used as both a primer on Atlantic City, as well as an outlook on the market over the medium-term.
There have been several notable events that have occured within the past 12 months or which are ongoing and are relevant to the market,including:
- Pinnacle Entertainment (PNK) abandons its Boardwalk project (former Sands site)
- Tropicana Entertainment emerges from bankruptcy Lenders take control of Resorts International from Colony Capital
- Trump Entertainment Resorts emerging from bankruptcy MGM announces it will divest its 50% JV interest in Borgata
- Revel continues to seek financing to finish construction (and receive potential tax abatement)
- Table games coming online in Delaware and Pennsylvania
- Philadelphia and Maryland slot parlors are looming on the horizon
- Boutique casino proposal that would lower the barriers to entry for new Atlantic City casino development
- Prospect for a total smoking ban on casino floors
- Potential legislation for VLTs at Meadowlands
- Potential for gaming at Bader Field in Atlantic City.
A Strong Case for Penn National to Acquire Pinnacle Entertainment
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.