Friday, October 28, 2011
Tuesday, October 25, 2011
Nevada Gold recently announced that it had come to an agreement to buy all of the outstanding shares of AG Trucano. Trucano is, by far, the largest operator of slot machines in Deadwood, SD. While most of the specifics of the deal have yet to be disclosed, I am presently optimistic...
I believe that the company has made an acquisition that is going to immediately generate a tremendous amount of revenue. When looking at the stats in this presentation that the company gave, the operator makes up approximately 24% of the slot machines in Deadwood…
Looking at the most recent annual report for gaming operation in South Dakota, we see that there was approximately $95.5 million in revenue generated by slot machines... If 24% of this went to AG Trucano (which, may not hold true due to revenue distribution) and there are no major changes in the South Dakota Gaming market, we can expect for Nevada Gold's revenues to go up by just a hair under $23 million... This is pretty significant for a company that has generated around $55 million dollars in revenue in the trailing 12 months.
Considering that the company paid ~4x trailing EBITDA, or $5.2 million (per the presentation that I saw at the annual meeting), that implies additional EBITDA of $1.05 million. If they get up to just 15% EBIDTA margins on, say, ~$25 million in revenue, that would imply additional EBIDTA of just under $4 million at some point in the future… Even if revenues for Trucano fall to $20 million, they will still be flying.
Another thing that I like about the acquisition is that the previous CEO remains with the company. I would imagine that to keep the purchase price down, that is part of why the company issued $100K in restricted stock, which may have some juicy conversion rights,will not only incentivize CEO to stay with the company, but, to also make it run well; he now effectively gets some of the upside of operations, plus whatever multiple the market assigns to it, which is something he didn't have nearly as much of as a private company! The debt structuring is also something that I really like. UWN used of a fair amount of cash in the purchase price, which indicates (to me) that management is sure of it's present operations and Nevada Gold's ability to grow using debt via Wells Fargo, seller's paper, stock, debt instruments via the recently filed S-3, etc...
Check this out to look at some of the legislation in effect in South Dakota for gaming. It seems that there are protections in place to shelter present operators from competitors coming in. Furthermore, if you look at the demographics of the area, there are a lot of older people there, who are typically the types of people playing slot machines. It is nice to know that generally, they have pretty steady incomes (pensions, Social Security checks, and the like), and, are living longer lives... As a result of this, I am hoping that this will keep revenues in the area relatively steady. Additionally, when looking at the demographics, while the population of Deadwood has been declining, the population of the county is more than making up for the decline. Furthermore, the populations of South Dakota and Wyoming (which is really close to Deadwood) have been growing. Again, not bad trends to see.
With all of this, is there any bad? While a smoking ban seemed to hurt revenues, it will ultimately keep the populous alive for a longer period of time, which, is never a bad thing (especially when it's one of the few places they can go to gamble). If we have learned anything from the company's filings, smoking bans don't kill operations in the long run; take a look at EBIDTA margins at the property in Cripple Creek.
As we have seen in the past, Nevada Gold generally does a great job of improving operations; just look at what they have managed to do with everything they have bought. I have no reason to believe that this acquisition will be any different. When a place is presently generating EBITDA margins of <5%, on a product offering that is generally pretty high margin, I am hopeful for there to be significant upside in operations...
All this said, the devil could lie in the details, which the company says it will disclose with their next 10Q. I anxiously await to read the filing. It will be the first one where we see operations for a full quarter of the Red Dragon.
Disclosure: I am long UWN. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.
Tuesday, October 18, 2011
Wednesday, October 12, 2011
"You don't have to be good to succeed. You just gotta be the least shitty option. Example: We're eating at The Olive Garden."
Monday, October 10, 2011
As an interesting side note, this previous article that I did was quoted in the suit.
Saturday, October 8, 2011
Friday, October 7, 2011
The computers used to control Predator and Raptor drones used in Afghanistan and other war zones have been reportedly infected by a virus that captures the keystrokes of the pilots operating the unmanned aircraft.
Although detected two weeks ago by the military's network security systems, the military has been unable to purge its computers of the apparent keyboard logger, Noah Shactman reported Friday in Wired's Danger Room blog.
“We keep wiping it off, and it keeps coming back,” a source familiar with the network infection told Shactman. “We think it’s benign. But we just don’t know."
Thursday, October 6, 2011
This comes, despite the fact that Esopus has provided more than enough evidence (as called for, by law) to warrant an examination of the company's books... It is a pity that Syms is continuing it's efforts and resources on things other than turning the company around and stopping mounting losses.
To pay homage to the late Steve Job's, my thoughts on Syms, the turnaround, and this court case are along the lines of his remarks on a certain executive that ran Apple when he was separated from the company.
"The management and board of Syms are continually trying to right the direction of the ship, while there is a big hole in the hull, causing the hole thing to sink."
Esopus - Oct 3- Appellate Reply Brf
Disclosure: Long Syms. This is not advice or a recommendation of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.
Tuesday, October 4, 2011
J: Let’s talk about slots in Washington. The legislation called for more than 7,500 slots to be authorized. How many of those do you think you all could... If it is legalized, which there’s a remote chance of, but how many of those do you think you could fit into your casinos, and what are the cannibalization effects that it will have on your existing business, and what about other operators coming in as a result of this legislation?Sturges: OK. The number that was in the last bill of 7875, the way that they got to that number was to multiply at that time, the existing number of card rooms, which was 63- there are a couple of less right now, and take an average of 125 machines per location, that’s how they got to 7875 and it would allow up to 200 slots in any one location. We have- most of our properties either have the space, or the space could be readily added on without a major problem, in, I want to say- at least 7 of the 10 properties. So, in our thinking we are looking at immediately, with not too much of an effort, we can get to 1500 machines, under the old bill, if that were to happen. In terms of- we don’t see any cannibalization of our existing business. We really see an expansion of additional gaming opportunities where the table game business would still be there but you would supplement that with, you know, with a whole new product and frankly, stereotypically, attract a lot more women, who tend to favor slot machines. Men tend to favor table games; obviously, there are exceptions. Couples now come and both couples now have a gaming option. It would just, it would be a tremendous expansion of our product offering and a tremendous expansion of our business if this were to happen. I am always careful to say I couldn’t handicap it.J: Right.Sturges: Because, you know, it’s politics. Who knows? It could never happen. It could happen, in January. There is a special session in November, that has just been called by the governor to plug a $2 billion dollar budget gap- mostly through cuts. Then in January, as I understand it, they are going to be talking seriously about where there are revenue opportunities and the slots in the mini casinos is definitely going to be part of that conversation... Whether it gets across the finish line, who knows, but, it is definitely going to be part of the conversation.J: OK. With the slots is there a feel for the amount of revenue that can be generated by said slots, and also, what kind of margins do slot machines generally have? I remember in a radio interview, where you talked about kind of the logistics of slots and whatnot, but, I was looking for a little bit more clarity on that, if it was at all possible.Sturges: Well, you know, it’s very market specific in terms of what kind of margins you can expect. It depends upon so many factors and that's why I would not want to speculate in Washington, because we don’t know what they tax structure is going to be. We proposed 35%, but we don’t know where that winds up and hopefully, it wouldn’t be any larger than that, because that’s the point where it makes business sense. Once you start getting above that, it becomes problematic. What are the restrictions on promotional activities? What’s your competitive set going to look like? But in terms of win per unit, with only 7,800 slot machines in Washington, being such a huge market, I think it’s safe to say that you should be in the $200 to $300 dollar win per unit range. So, you can kind of do the math based upon the win per unit in terms of a top line. And then margin wise, obviously, slots are far more efficient than table games. But again, there’s so many factors I don’t know that will be in place in Washington that I wouldn’t want to speculate. But I can tell you, the 20-30% margin that we run between sometimes with our table games in our WA 1 properties should be easily achievable with slots.
In the event that slots are legalized, how much additional expense do you see coming from them (replacement of units, maintenance, administrative, ect)
As far as the operating margins, I would only say at this point that they should be superior to the Washington I margins which have been in the 20% range. This assumes no more than a 35% tax rate on slot revenue. On the capital side, we don't know whether it will be our responsibility to buy the equipment or if the lottery officials will front that expense as is the case in some states. The replacement cycle varies from 5-7 or 8 years depending on a lot of factors. One machine with all the bells and whistles including signage would cost close to $20k.