New Missouri Casino And Hotel Openings Will Broaden Hospitality Market

Key Takeaways

• New casino openings and expansions in Missouri are driving significant revenue and EBITDAR growth through increased visitation and market reach.
  
• Strategic cost management and improved operational efficiencies are enhancing free cash flow, profitability, and earnings over time.
  
• Macroeconomic challenges, inconsistent property performance, and high debt levels could strain Century Casinos' financial flexibility and impact revenue growth and earnings stability.

Catalysts

Operates as a casino entertainment company in the United States, Canada, and Poland.

• The opening of the new land-based casino in Caruthersville, Missouri, is expected to increase revenue and EBITDAR significantly, as it has already shown improvements with higher customer visits and gaming positions, impacting revenue and EBITDAR positively.
  
• The new hotel at Cape Girardeau is expanding the customer base into new markets and driving significant increases in F&B sales, which should enhance revenue growth and overall earnings.
  
• The potential launch of sports betting in Missouri could lead to incremental high-margin EBITDAR, benefiting net margins and earnings as the company finalizes partnerships.
  
• Cost management efforts and reduced capital expenditures are expected to lead to improved free cash flow and profitability, impacting net margins and overall earnings as major CapEx projects wind down.
  
• The focus on improving operational efficiencies and customer experience in existing properties, particularly targeting mid-to-upper tier customers, is projected to enhance EBITDA and earnings over time as market conditions stabilize.

Century Casinos Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Century Casinos's revenue will grow by 4.6% annually over the next 3 years.
• Analysts are not forecasting that Century Casinos will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Century Casinos's profit margin will increase from -22.3% to the average US Hospitality industry of 7.0% in 3 years.
• If Century Casinos's profit margin were to converge on the industry average, you could expect earnings to reach $45.8 million (and earnings per share of $1.53) by about May 2028, up from $-128.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.3x on those 2028 earnings, up from -0.3x today. This future PE is lower than the current PE for the US Hospitality industry at 22.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Century Casinos Future Earnings Per Share Growth

Risks

• Macroeconomic factors and inflationary pressures are impacting lower-end consumers, leading to weaker revenues from retail and low-end customers, which could affect overall revenue growth and net margins.
  
• The closure of the temporary casino in Caruthersville, Missouri, before the opening of the new land-based facility resulted in lost revenue and EBITDA, which could impact short-term earnings.
  
• Inconsistent performance across different properties, particularly the revenue declines in the East segment and challenges in the Alberta market, could result in uneven revenue and profitability growth.
  
• High debt levels, with net debt of $241 million and a net debt-to-EBITDA ratio of 5.5x, could strain financial flexibility, especially in a rising interest rate environment, impacting net earnings.
  
• Volatility in consumer sentiment and dependence on low-end customer segments create uncertainty in revenue forecasts, leading to potential fluctuations in future earnings and cash flows.

Valuation

• The analysts have a consensus price target of $4.75 for Century Casinos based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.0, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $658.3 million, earnings will come to $45.8 million, and it would be trading on a PE ratio of 4.3x, assuming you use a discount rate of 11.4%.
• Given the current share price of $1.34, the analyst price target of $4.75 is 71.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.