I have advocated Full House Resorts (NASDAQ:FLL) to Off The Beaten Path subscribers for a few different reasons but importantly 1) Valuation and 2) CEO Dan Lee and his team. The latest earnings call did nothing but underscore both arguments.
The numbers were very good but that was to be expected as the company had an easy comp with the hotel coming online at the Silver Slipper. I am excited about the energy with which the current team is tackling the problems at this otherwise unimpressive local casino operator. Around Christmas live reindeer were brought in to brand the Rising Star The Christmas Casino. The team is still working, and making progress, to get to operate a ferry service from Kentucky. A cheap way to broaden the region the company caters to. A new plan is to convert some unused parking lots near the casino to an RV park. Unused is really a key word here. Every call the executive team is coming up with underutilized opportunities, hidden assets or creative ways to improve the value of current assets. Not every plan works out as apparently the Indiana airport development is quite a long shot now but still the company has a thousand slot machines in storage that it could deploy somewhere in this state at few additional costs and with the licenses already in place.
The one thing that had me seriously reconsider this investment was the state of the corporate debt market. Full House Resorts is pretty heavily levered (even though the owned real estate balances this out somewhat) and it is paying a steep price on a major part of its debt. A refinancing at lower rates would substantially increase EPS. The company is also in the process of acquiring the Bronco Billy's Casino at Cripple Creek and this could have become a problem. The deal can still break, which would cost $2.5 million, but management appears to have things under control. The problems is contained in so far that refinancing the expensive debt will have to wait (one or two years) but the acquisition is not at risk.
On valuation, including the acquisition management guides towards $25 million of EBITDA in 2018/2019 with debt of $100 million (post acquisition). To give you an idea, given the current market cap of about $30 million that implies something like a forward EV/EBITDA of ~5x. This is not an exact valuation and it doesn't take into consideration cash coming in until 2018 and 2019. Yet, it serves to illustrate the value present.
Disclosure: I am/we are long FLL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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