Regional gaming company Century Casinos is on a tear from its March lows, surging nearly 466 percent over that span, but at least one analyst believes the stock has much more upside ahead, particularly if a “transformative” acquisition comes to pass over the next several months.
In a note to clients last Friday, Roth Capital analyst David Bain reiterated a “buy” rating on Century with a 12-month $11 price target, imply the stock will nearly double from its Oct. 16 close at $5.72. A move to $11 would be well above the name’s pre-pandemic peak of $8.95.
Colorado-based Century operates gaming properties in its home state, Missouri, and West Virginia, and has international venues in Canada, Poland, and in the UK. However, the operator recently sold a Canadian asset and Bain believes the company can turn its revenue mix to 80 percent US/20 percent Canada by 2022 with some smart acquisitions.
Century is in unique position to benefit from an unprecedented number of marketed, underpriced gaming assets,” said the analyst. “We calculate CNTY could comfortably acquire a $90 million earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) US gaming asset with little to no equity capital consideration.”
Translation: Bain believes the operator can purchase a rival without having to shell out equity, which is preferable for investors because when companies issue new stock, current shareholders are diluted.
The Road to $19
As of the Oct. 16 close, Century has $163.62 million market capitalization, so even if it doubles in value as Bain believes it can, it’d still be a small-cap stock.
Under any circumstances, a stock doubling is impressive, but approaching a quadruple is obviously more so. That could be the case for Century as Bain sees a road for the name possibly surging to $19, an undoubtedly impressive feat considering this was a $1 name at its March nadir.
If an accretive acquisition is made, Century could trade at a 4x enterprise value/EBITDA in 2022 compared to 9.1x for its peers, according to the analyst.
“At a two turn discount to peers, CNTY would trade for $19 per share,” said Bain.
Broadly speaking, Wall Street is enthusiastic about Century stock, but $19 is an ambitious forecast. In roughly a decade as a publicly traded entity, the operators has only enjoyed brief moments trading above $10, never even touching $11, let alone $19.
‘Transformative’ Deal Could Happen
While Century is one of the smallest publicly traded gaming outfits in the US, its management team has a reputation for making shrew deals and Bain believes another such acquisition could be in the works, saying a “transformative” transaction could be unveiled over the next six months.
The analyst notes the combination of larger gaming enterprises either grappling with issues stemming from the COVID-19 pandemic, working to strengthen finances, focusing on iGaming and sports betting or all of the above is leaving some assets underpriced, perhaps positioning a company like Century to strike.
“CNTY is one of a handful of companies with the balance sheet capability to pursue such assets, which combines with a proven M&A record/management and portfolio that such an acquisition could leapfrog its current stock multiple/shareholder base, in our view,” said Bain.
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