October 03, 2019 - 4:49pm EST by
2019 2020
Price: 12.98 EPS na na
Shares Out. (in M): 22 P/E na na
Market Cap (in $M): 288 P/FCF 17.8 6.0
Net Debt (in $M): 1,037 EBIT 82 95
TEV (in $M): 1,326 TEV/EBIT 16.24 13.97

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Company Description


Golden Entertainment (“GDEN”) conducts its business through two reportable operating segments: Casinos and Distributed Gaming. The Casinos segment, owns and operates ten resort casinos: nine in Nevada and one in Maryland. The Distributed Gaming segment involves the installation, maintenance and operation of slots and amusement devices in non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores and grocery stores in Nevada and Montana, and the operation of branded taverns targeting local patrons located primarily in the greater Las Vegas, Nevada metropolitan area.


Capital Structure & Relevant Financial Metrics



Business Description & Current Situation 

  • GDEN owns and operates 10 resort casino properties in Nevada and Maryland comprising:

    • The Strat, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder in Las Vegas, Nevada, 

    • the Aquarius Casino Resort (the “Aquarius”), the Edgewater and the Colorado Belle in Laughlin, Nevada, 

    • the Pahrump Nugget Hotel Casino (“Pahrump Nugget”), Gold Town Casino and Lakeside Casino & RV Park in Pahrump, Nevada, and 

    • the Rocky Gap Casino Resort (“Rocky Gap”) in Flintstone, Maryland 

  • The Strat: The Strat is GDEN’s premier casino property, located on Las Vegas Blvd on the north end of the Las Vegas Strip and makes up approximately 30% of the Casino Segment revenue.  The Strat comprises:

    •  the SkyPod (observation deck, restaurant & rides), a casino, a hotel and a retail center. 

    • At year end 2018, The Strat featured an 80,000 sq. ft. casino, 2,429 hotel rooms, 686 slots, 48 table games, a race and sports book, 11 restaurants, two rooftop pools, a fitness center, retail shops and entertainment facilities. 

    • GDEN is currently investing in a $140 million strategic renovation of The Strat. Upgrades to the property encompass room and suite renovations, new premium food and beverage outlets including a tap room concept featuring our signature branded craft beer and menu, a refresh of the Top of the World restaurant, remodel of the casino room floor, addition of attractive group meeting space, and an update to the signage and lighting on the exterior.

      • By year end 2019, approximately $85 million will have been spent on the renovation.

      • By year end 2019, will have approximately 880 rooms refreshed (new rooms demand a $20 per day ADR premium) and will have fully renovated its casino floor.  Additionally, they will have renovated parts of the Skypod, including a remodeled gift shop, food and beverage outlets and improvements to the Sky Jump experience

  • Distributed Gaming segment involves the installation, maintenance and operation of slots and amusement devices in non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores and grocery stores in Nevada and Montana. In addition, GDEN owns and operates branded taverns with slots, which target local patrons, primarily in the greater Las Vegas, Nevada metropolitan area. As of December 31, 2018, distributed gaming operations comprised approximately 10,700 slots in over 1,000 locations.

    • Branded taverns offer a casual, upscale environment catering to local patrons offering superior food, craft beer and other alcoholic beverages, and typically include 15 onsite slots. GDEN ownes and operates 60 branded taverns, which offered a total of over 950 onsite slots. 

    • Continue to look for opportunistic and accretive opportunities to pursue additional tavern openings and acquisitions. Most taverns are located in the greater Las Vegas, Nevada metropolitan area and cater to local patrons seeking more convenient entertainment establishments than traditional casino properties. 

    • tavern patrons are typically younger than traditional casino customers, which diversifies GDEN’s customer demographic. 

Investment Thesis

  • GDEN’s niche focus offers a “bet” on gaming in Nevada

    • Most revenues are generated in the State Nevada, which has lowest gaming tax rate in the US and offers excellent demographics

      • Las Vegas is the leading US entertainment destination

      • Group and leisure demand continues to grow

      • Huge expansion of Las Vegas convention space

      • One of the fastest growing states in the US

      • Unemployment of 4.1%

  • 2020 is shaping up to be an excellent year for Las Vegas

    • Limited new supply of Casinos / Hotel Rooms

      • Resorts World scheduled to open in December 2020 is the only new supply

    • CON/AGG Expo, the largest construction trade show, which occurs every 3 years, is schedule for March 2020

      • Expected to surpass the 128k attendees in 2017

    • Convention space – Las Vegas, which has 11.5 million square ft of convention space, is planning to increase convention space by 30% over the next few years which should bring in many more visitors. 

      • WYNN adding 400,000 square ft of convention space in 2019

      • CZR adding 550,000 square ft in 2020

      • Las Vegas convention center is adding 1.4 million square ft, the first phase of which should be available by late 2020

    • Raiders – Las Vegas believes that the Raiders and their new stadium and will bring in many new visitors

    • CZR & MGM, the largest strip operators, have been bullish on 2020

  • Investment in The Strat will start paying off in 2020

    • Historically, the Strat, like Circus Circus, were the “Dorm Rooms” of the strip, attracting low budget travelers. Approximately 70% of rooms are booked through low-margin OTA’s and nearly all visits are booked within 2 weeks of stay

      • They will now be marketing more to their database of players and have installed a proper hotel revenue management system, which will lessen their reliance on OTA’s

    • The new rooms are a significant upgrade and GDEN has already been able to get $20 extra per renovated room (over the $60 ADR for the dated rooms), which should add over $5 million of EBITDA in 2020

    • The renovated gaming floor and lobby will be fully upgraded by year-end.  The new fresh look should attract more people who are just visiting the observation deck

      • GDEN plans on using its existing distributed gaming customer database to drive more gaming traffic to The Strat

    • Additionally, the renovations to the observation deck should also add between $10-$20 per visitor for the 1 million visitors that visit each year

    • Ultimately, the new renovations are expected to add at least $35 million of EBITDA a 25% ROI

  • While small, GDEN’s wholly owned tavern’s on their distributed gaming routes offer high ROI’s and steady growth

    • GDEN expects to develop 6-8 taverns per year.  A typical tavern costs $1.5 million to build/renovate and typically generates $500k of EBITDA a year 

    • GDEN’s rated play at its wholly owned taverns appeals to a younger demographic than traditional casino customer

    • Additionally, the new systems allows GDEN to increase its gaming database in the LV Locals market, giving it cross marketing opportunities with both The Strat and Arizona Charlies

  • The growth capex at The Strat is obfuscating the cash generation power of GDEN

    • GDEN will spend $60 million on The Strat in 2019, and will be 60% through the scheduled upgrade

      • It is expected that GDEN will pause its Capex program to see how the successful phase 1 and phase 2 have been before completing the Upgrade

      • Maintenance Capex is around $25 million – this is a lot closer to the capex spend of most casinos

      • Assuming maintenance capex, GDEN could be generating close to $85 million in fully taxed FCF or a 28% FCF yield

      • Even using the full 2020 Capex expectations, GDEN should be generating approximately $55 million of FCF or a 19% FCF yield

      • With no impending debt maturities, it is expected that GDEN will start buying back stock

  • Interests are aligned as insiders own approximately 32% of the company and have generally been buying more shares

  • In a recession scenario, where EBITDA drops 20%, GDEN will still generate FCF and leverage would go to 6.5x, which is a manageable down scenario



  • GDEN has had nice growth over the last years, mostly through acquisitions.  In 2020, top line is expected to grow 3%. Believe that it is possible for top line to grow as high as 5% in 2021 if they are able to execute their plan

    • Even 3% is higher than the expectations for all regional peers 

  • While leverage is on the high side (5.5x 2019 EBITDA), their balance sheet is in pretty good shape

    • Asset Rich – they own all their casinos

    • Low interest rate debt, with no maturities until 2024

    • Financing Capex spend with Free Cash flow, so naturally delveraging

    • Leverage Should be below 5x EBITDA in 2021

    • HY Bonds in April 2019 trade above par

    • Once strategic capex build is finished, Debt to FCF should be 10x, should give investors comfort in GDEN’s ability to manage their liabilities

  • Comps trade at 8.5x 2020 E. EBITDA and 10x 2020 E. FCF

    • 8.5x 2020 E.EBITDA = $29 per share

    • 10x 2020 E. FCF = $21.5 per share

  • Currently, GDEN is trading at industry low multiples of 

    • 6.7x 2020 E. EBITDA

    • 6x 2020 E. FCF and 3.5x recurring FCF (assuming Capex normalizes)


Why Does This Opportunity Exist?

  • Large Project Capex masking FCF 

  • Small cap stock with leverage that is under the radar 

  • General market bias against leveraged casino stocks over the last year on fears of an impending recession

    • Prior to 2008, there was the belief that gaming stocks were recession proof, the 2008 recession proved that notion false especially for Las Vegas strip hotels

    • 2019 is vastly different than the environment in 2008

      • In 2008:

        • Peak Valuations – premium to the market

        • Stretched Balance Sheets – massive construction projects, stretched the balance sheets of virtually every operator

        • Deep Recession, with President Obama even saying how it is wrong for companies to hold conferences in Las Vegas

        • Huge increases in supply – City Center, Palazzo, Encore all came online on the strip and the Aliante and Red Rock were major local casino hotels that were built and much more supply was being built, including the Echelon and Fontainebleau (which were never built) as well as many non-casino room additions like the Trump International Hotel

        • Vegas local economy was driven by the Casinos and all the construction in Las Vegas

      • In 2019

        • Trough Valuations – huge discount to market

        • Balance sheets in relatively good condition – Casino’s do not have major capex budgets and all are throwing off a lot of FCF, have low cost debt and are deleveraging

        • US Economy is still strong, but all operators are preparing for a recession

        • Extremely rationale operating environment

        • No Supply coming online until late 2020, when Resorts World (former Echelon casino) is expected to open.  The 3,500 rooms will be approximately a 2% increase in capacity

        • Local economy strong and diversified.  Vegas is one of the fastest growing cities in the US and will have a Pro Football team in 2020 

        • Casino Revenues per Position still materially below peak levels achieved in 2007




  • From a timing perspective, I think that there is risk to 3Q 2019 numbers because of the significant disruption to the casino floor at The Strat
  • Recession come sooner and is deep

  • Poor execution by management team

  • Future development Las Vegas 

I hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


progress on execution of The Strat upgrade

2020 Guidance

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