Century Casinos is Catalyst-Rich Value Idea, Says Analyst

Posted on: January 13, 2022, 11:35h. 

Last updated on: January 13, 2022, 02:38h.

Century Casinos (NASDAQ:CNTY), a small-cap regional casino operator, is following other gaming equities lower in recent weeks. But those declines may be opening the door to a value proposition.

Century Casinos
Craps players at Century Casinos’ Mountaineer casino resort in West Virginia. An analyst says the stock could soar. (Image: Cleveland.com)

That’s the sentiment of Roth Capital analyst Edward Engel, who initiates coverage of the Colorado-based gaming operator with a “buy” rating and an $18 price target. That implies upside of more than 50 percent from the Jan. 12 close. The call arrives as Century shed 19.7 percent over the past 90 days.

Engel notes Century trades at just 5x estimated 2023 earnings before interest, taxes, depreciation and amortization (EBITDA), indicating the name is deeply discounted relative to peers. Additionally, the operator is making moves to enhance some of its regional properties, which could pay off for patient investors.

Century is pursuing a $68 million expansion across its two properties in Missouri, where the company is relocating riverboat operations in Caruthersville to land and developing 75-room hotels adjacent to both Missouri casinos,” said Engel. “We believe these investments are capable of generating ~20 percent ROIs, implying ~$12 million of incremental EBITDA.”

The analyst adds Century sports a 15 percent yield to free cash flow (FCF), compared to an average of 10 percent for its most direct competitors.

Expect Scale Through M&A

One of the long-standing points of emphasis for analysts covering Century and those bullish on the shares is the operator’s expected participation in gaming industry consolidation.

The company has a reputation for scooping up regional assets that are no longer wanted by larger operators and breathing new life into those venues. Management usually aims for a deal every 12 to 18 months, and if that precedent holds true, a transaction could be announced at some point in the coming months.

“After a wave of industry consolidation last decade, we see an opportunity for Century to acquire smaller assets from industry leaders, such as Caesars, Penn, and Boyd,” notes Engel. “By acquiring neglected assets, Century can dedicate more resources to capturing synergies through improving efficiencies and cutting costs.”

The analyst doesn’t specifically identify what casinos those companies could sell to Century. But the operator previously purchased gaming venues from Eldorado Resorts, the firm that is now Caesars Entertainment (NASDAQ:CZR).

Engel points out that with the scale Century can build through acquisitions, it could be the next transformative small-cap gaming stock, joining a pantheon occupied by the likes of Bally’s (NYSE:BALY), the old Eldorado, and Golden Entertainment (NASDAQ:GDEN).

Century Honing US Focus

Unbeknownst to many investors is the fact that Century is an international operator, with casinos in Canada, England, and Poland, in addition to its US properties.

However, the company is parting with non-core assets in Canada and England and is looking to sell its 66.6 percent interest in Casinos Poland.

Engel estimates that the transaction could generate $40 million in cash, which could be used for Century’s acquisition war chest. Longer-term, the operator could raise another $150 million by parting with some Canadian assets.