Capital Allocation & Casinos Roll-up (Long NASDAQ:CNTY)

Executive Summary: At $3.25/share, the market is not anticipating the growth trajectory of Century Casinos, a company with an emerging track record of operational excellence and a stellar balance sheet.

While the larger casino industry is facing secular decline in Las Vegas, bullish forecasts in Macau and economic uncertainty throughout most of the world, CNTY’s patient approach to developing a global platform of mini casinos (1/10th and 1/20th the size of Vegas Casinos in sq feet) has resulted in a promising business that is lacking in investor coverage.

CNTY has mastered the lean casino down to a science of slots, tables, hotel rooms and extensive diversification across Aruba, Canada, U.S., Europe (due to a recent stake in a Polish casino group) and various cruise lines. Additionally, it has ensured gross margins of 44%, top in class net margins of 6% and limited debt levels among comparable firms. Even if margins were to stay constant, sales would have to drop 14% a year for the next 3 years to justify current trading multiples. With a balance sheet of $24M of net cash, continued margin improvement across the platform, and a knack for efficiency, combined with a  market multiple, CNTY should trade at a premium north of $5.00/share.

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4 thoughts on “Capital Allocation & Casinos Roll-up (Long NASDAQ:CNTY)

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