Description

The Sands Regent (“SNDS”) is a small cap gaming company based in Reno, Nevada. The company has about $2.40 in cash and is currently trading at $2.80 per share. There are 4.5 million shares outstanding and long term debt of $10 million indicating an enterprise value of $23.5 million. The company owns and operates the 850-room Sands Regency Casino and Hotel in downtown Reno, NV. The casino has about 650 slot machines and 19 table games in 29,000 square feet of gaming space and a 12,000-square-foot convention and meeting center that seats close to 1,000 people. The Sands Regency casino/hotel complex includes a Tony Roma's restaurant, a Pizza Hut, an Arby's restaurant, a coffee house/deli-style restaurant, an Original Mel’s diner restaurant (operated by a third party) and one other restaurant.

The company has been looking to deploy its cash war chest and recently announced the acquisition of a small casino operation on the California/Nevada state line near Verdi, Nevada at what amounts to a 20% capitalization rate.

For the FYE 9/30/01 the company generated EBITDA of $5.9 million. Small gaming companies typically trade at 5-7x EBITDA depending on location and growth prospects. This would indicate an EV between $30 and $35 million or a stock price of $4 to $5 per share. Unfortunately the founding Cladianos family that has not shown much interest in selling their position holds a large block of stock. Public information indicates that at least one group tried to acquire the family position and the Cerberus group ended up with a reporting position in the stock.

The best move the family made in the least few years was the hiring of Ferenc Szony, formerly of Hilton, he is well respected in the gaming world and according to friends near the company he has done an excellent job. Several years ago (pre Szony) the company tried to enter the Mississippi market and ended up writing off almost $18 million. Since that time the company has hunkered down and with Szony’s help has tuned up operations at the downtown Reno operation and focused their attention on opportunities within the Reno area.

Reno is certainly not Las Vegas and has been impacted by the slowdown in airline travel and Indian gaming in California. However, it is still a Vegas like experience and only about four hours by car from the San Francisco Bay area and three hours from the growing Sacramento metro area. Reno has the distinction of being the site of the National Bowling Stadium and large tournaments are held there on a regular basis.

Catalyst

Stable business at small premium to liquidation value.
Eventual sale of controlling stock by Cladianos family
Growth through acquisition of regional facilities at accretive prices
Refinancing of long term debt at better pricing