May 18, 2009 - 10:44am EST by
2009 2010
Price: 2.14 EPS -$0.76 -$0.03
Shares Out. (in M): 24 P/E na na
Market Cap (in $M): 51 P/FCF 17.3x 13.0x
Net Debt (in $M): 26 EBIT 2 4
TEV ($): 77 TEV/EBIT 48.0x 19.0x

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I am recommend buying Century Casinos (CNTY). My sum-of-the-parts valuation of $3.00 represents a 40% upside. This valuation is conservative as it is limited to the catalysts described below and does not assume a recovery in CNTY's earnings power resulting from an improved economy. In other words, an improved economy is a bonus which will send the target price much higher.


CNTY has an EV of $77mil. Towards the end of q2 2009 CNTY will receive $42mil from the sale of it's South African casino's. This implies that investors are buying the stub for $35mil.

The stub consists of  

  • Womacks, a casino in Cripple Creek, Colorado (437 slots + 4 tables)
  • a casino in Central City, Colorado (525 slots+9 tables)
  • a casino in Edmonton, Alberta, Canada (658 slots+35 tables)
  • Casinos on five cruise ships (143 slots + 22 tables)
  • a 33% interest in 8 casino's in Poland (255 slots + 100 tables)

Before looking at the earnings power of these assets it is worth noting that the Edmonton and Central City casino's both opened in 2006. The development costs were $30mil and $50mil respectively. Comparing the $80mil replacement cost of only two assets to the $35mil value of the stub clearly indicates that CNTY is trading at a substantial discount to it's replacement cost.


Strong Catalysts

The catalyst for the trade includes

  • 1) The implementation of Colorado's Amendment 50 on July 1, 2009.
  • 2) Receipt of $42mil from the sale of South African casinos


Amendment 50:

In November 2008 Colorado approved Amendment 50. Amendment 50 increases the maximum bet size from $5 to $100. The legislation also allows casinos to add roulette and craps for the first time and to operate 24 hours a day 7 days a week. (Casino's currently close at 2 am.)

CNTY management believe that the relaxation of gambling laws will grow gaming revenues by 20% to 30% as a more competitive Colorado grabs market share from Las Vegas.

Proceeds from Sale of South African Casino's

The $42mil proceeds are expected late q22009 following the approved of the sale by the South African gaming boards. This approval is a formality and there is almost no risk that the sale will not be approved.

Management have guided that they want to use the proceeds to pay down some of the debt. The remainder of the proceeds will be used for buybacks (depending on the stock price) or for acquisitions.


Sum-of-Parts Valuation



There are 7 casinos in Edmonton, a city of 1mil inhabitants.

CNTY developed their casino for CAD36mil (USD31mil). The casino opened in Nov 2006.

                                                              2008              2007

Revenue (CAD)                       23 318             20 536

EBITDA(CAD)                          8 492               6 037

The casino has been successful generating a 24% EBITDA return on invested capital. The casino also appears to have escaped the effects of the credit crunch growing revenues in q12009 by 7% to CAD5.970mil. EBITDA grew by 15% to CAD2.208mil.

Using a 6 times EBITDA multiple gives a value of CAD48mil or USD41mil. I have used a 6times multiple as the 24% growth in year-on-year revenues indicates that this casino is still in the process of maturing.


Womacks, Cripple Creek

CNTY has operated Womacks, 45miles from Colorado Springs, since 1996. Cripple Creek is a competitive market with 16 casinos competing for the gambling dollar. The market has suffered from the weak economy and a smoking ban which came into effect in January 2008.

                                                  2008              2007               2006                2005   

Revenue                       11 243             16 722             16 255             17 108

EBITDA                        1 667               5 432               6 150               6 214

In 2001 revenue was R21mil and EBITDA 10.8mil. Revenues and profits have been under pressure as a result of increased competition. This decline was accelerated by the opening of a 700 slot casino in q32008. As a result Womack's market share has declined from 18% in 2000 to 8% today.

If that was not tough enough the January 2008 smoking ban and weak economy have hurt revenues and profitability. Revenues fell 29%, 36%, 38% and 25% in q1, q2, q3 and q4 2008. EBITDA declined by 78%, 74%, 66% and 47%.

In q1 2009 revenues only declined 10.8% to R2 572mil. Even more impressive q12009 EBITDA increased by 77% to R494mil. 

Q12009 results encapsulates the now famous positive 2nd derivative as well as evidence of the green shoots fertilized by Helicopter Ben and Toxic Tim. These hopeful signs should be bolstered by the implementation of Amendment 50 on July, 1 2009.

Assuming a EBITDA of $1 667mil marks the bottom and adding 30% for Amendment 50 indicates that future maintainable EBITDA should be at least R2.2mil. A conservative 4 times multiple implies a value of R9mil. (The replacement costs of the 437 slots alone is approximately $4.5mil.)


Central City

The casino was opened in July 2006 at a cost of $50mil. Central City has 6 casino's with a further 18 casino's in the neighbouring Black Hawk.

                                                  2008              2007

Revenue                       17 435             20 374

EBITDA                        3 906               4 922

Like Womacks, revenues and profits at Central City have been hurt by the smoking ban and slower economy.

Again, considering the cruel environment Q12009 revenues and profits held up well. Revenues only declined by 5% to $1 063mil. EBITDA rose by 27% to R1mil. Using R1mil per quarter EBITDA as a base and adding 30% for the favourable impact of Amendment 50 indicates that the casino could generate an EBITDA of R5mil per annum. Using a 5 times multiple implies a value of R26mil well below the $50mil development cost.



CNTY operate 123 slots and 18 tables on 4 ships. The income stream is fairly volatile depending on the number and quality of customers on the ships. Dry docking for maintenance can make the income stream fairly lumpy.

CNTY have recently signed an agreement with a German cruise ship operator to operate casinos on up to 4 additional ships. This deal could double the amount of passengers exposed to CNTY's casinos.

On average the ships generate $100k EBITDA per annum per ship. Using an average of 6 ships and an EBITDA multiple of 6 implies a value of $3.6mil. (I have used a multiple of 6 as shipping profits are only taxed at 3%.) 



CNTY bought 33% of Casinos Poland in March 2007 for $12mil. Casino Poland is the largest casino operator in Poland with 50% market share. CNTY have board representation and actively participate in the operation of the casinos. After tax margins are barely 4% and there is hopefully a lot of room for improvement.

The investment is accounted for using the equity method generating equity profit of $0.9mil in 2008.  Using a PE multiple of 6 to reflect the risk of being a minority shareholder and potential currency risk implies a value of $5.4mil


Head Office

Head office costs are far too high a $6mil per annum. Using a multiple of 5 implies a drag of $30mil on the valuation. Management will have to address these costs especially since head office no longer has to support the South African operations.



South African(Proceeds)            $42.0mil

Edmonton                                 $40.7mil

Cripple Creek                          $  9.0mil

Central City                              $26.0mil

Ships                                        $  3.6mil

Poland                                      $  5.4mil

Head Office                              ($30.0mil)


EV                                           $ 96.7mil

Net Debt                                  ($26.0mil)


Market Cap                             $70.7mil (or $3 per share)




The $3.00 calculated above is conservative. Womacks is valued at a lousy $9mil even though it was able to generate $5.4mil per annum as recently as 2007. Also, Central City is valued at $26mil well below the $50mil development cost. There is obviously a lot of upside to these values if the economy recovers. For the moment I am not betting on an economic recovery. My only catalysts are the receipt of the South African proceeds and the introduction of Amendment 50.




1) The implementation of Colorado's Amendment 50 on July 1, 2009.

2) Receipt of $42mil from the sale of South African casinos

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