Thursday, July 14, 2011

Nevada Gold's Golden Quarter.

After reading the company's press release, annual report, and listening to their conference call, I am quite happy with the progress the company has made.

The company noted that it is working with multiple parties to refinance it's debt. While the cash flows from their properties are great, a refinance would help out, as it would likely significantly lower their interest rate; a 4% drop on $15 million in debt would essentially add $600K in cash flow. Additionally, if they use cash flow to pay off their debt, numbers will look a lot better. They have well over $5 million in cash on hand, and should be generating well over $4 million in the next year, just from casino operations; as a result of this, I have little worry about them being able to pay their debts or being able to refinance it. In the event that they refinance it, they will be free to use their cash in other ways (to continue acquisitions!).

Do yourself a favor and look at the cash flow statement. It is an impressive site to behold, and should continue to improve as they integrate operations and add more.

Their land in Colorado is being reassessed by appraisors; already knowing something about the land, I expect for them to drastically lower the asking price. Which is just as well, I would almost rather the company have even just a million dollars (less than 1/3 what it is on the books for) to pay debt off with than the hassle of owning it- which is frankly, a stretch in my mind). At this point, the company is doing an incredible job buying casinos and turning them around. If they can continue acquiring casinos with the economics of their previous acquisitions, then they need access to as much capital (even debt) as they possibly can.

Speaking of acquisitions... The company is coming along with getting it's gaming license in Nevada. They have been looking for and at casinos to purchase in and out of Nevada. As I wrote here, depending on what they can find, it has the potential to be quite good for the stock. Given their track record, I have no fear about them making a bone headed acquisition decision.

In regard to video slots, the legislation didn't pass, but, will likely be brought up during the next session (this winter). The budget in Washington is in bad shape, and revenues simply are not where they need to be. When I talked with a higher ranking member of the Washington Legislature a few weeks ago, he didn't seem to think that it was a slam dunk, but, was optimistic about the prospects. While I personally don't add anything to the intrinsic value of UWN for the likelihood of this new revenue, if it does happen... wow.

Rightfully so, the industry is going to be lobbying, but, you can rest assured that the Native American casinos will lobby against the efforts (as they will, no doubt lose money from such legislation).

On the call, there was a question asked about dilution of shares in respect to acquisition. Let me be clear, that if they continue to buy properties at such low prices, I would be content with them only using stock! Reason being that have been buying them for a lower EBITDA multiple than the stock trades at, so, it is a better deal for shareholders... This especially holds true once they get in their and work their magic on ops. I look forward to seeing what the company can do with their newly announced acquisition- they will have a monopoly on mini-casinos in the city!

Again, this stock has a ton of potential. There is huge upside that isn't factored in if they acquire something. They have a development project and a big account receivable that seemingly no one thinks the company will never receive a cent from. Additionally, the potential for favorable legislation is completely discounted. The company isn't even expensive based on present operations alone! I think that eventually, coverage will pick up as the company grows. There are a ton of catalysts for the stock and I am presently quite pleased to be a shareholder.

Disclosure: I am long UWN. This is not advice of any kind. Always to a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

1 comment:

Chris said...

Seems cheap on an earnings basis but I'm not sure a margin of safety exists at the current share price. Thoughts?