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Darius Samz
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I picked up investing while in high school and have been heavily involved since. I enjoy educating others on various financial topics and run three different portfolios.
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  • CNTY: Take A Gamble With Century Casinos

    With the stock market in a strong upwards trend you need something that will withstand a downturn. A small cap stock with strong earnings history may be your answer. Century Casinos (NASDAQ:CNTY) is an international casino operator. They have a market cap of $85.7 million and are valued low compared to the competition. They are also priced at below $4.00 which makes them even more intriguing as a small cap value play. Century is very well placed to benefit from an increase in consumer spending and the low cost of capital currently. They have also proven themselves as a casino operator capable of increasing a customer base while decreasing costs.

    Its four current gaming centers in North America are in Canada and the United States. Canada and the United States have been financially stable compared to the rest of the world in recent years. Both countries have populations with enough discretionary spending to support the gaming industry especially as consumer spending begins to increase. Century Casinos also has 12 agreements with four different cruise lines for operating the casinos. There are also 9 casinos that Century operates under the subsidiary of CPL in Poland and they are applying for more licenses in the country. They own 66% of the shares in CPL. Lastly, Century Casinos operates a casino at the Radisson Aruba Resort.

    A Racing Entertainment Center is planned to be built in Calgary, Alberta, Canada. Applications have been submitted to authorities but approval dates are unknown. Most likely, approvals are about 1 year away. Financing for the facility has already been secured. It will be the only race track in the area and will also offer 625 slot machines, bar, and other entertainment areas. The center should attract new customers who are interested in horse racing. The gaming center should also not detract from the other centers it owns in Canada.

    There are also plans for a casino in Southeast Asia with 30 gaming tables and 100 slot machines. Financing up to $1.1 million has been secured. As consumer spending becomes a focus for China and other growing emerging market economies, casinos will benefit from the rise of a middle class. Century is skilled at finding locations with little competition and dominating that market. Additionally, a license for a casino in Vienna has been applied for which will help diversify its European market.

    Now, most of these projects are small. Yet, with the low exposure to high capital costs, the projects should bring in plenty of cash for operations. Century has secured enough funding both internally and from the Bank of Montreal for expansionary projects and reinvestment activities.

    Operating expenses decreased by 2% while overall revenue increased by 2%. These increases are due to expansionary practices of Century. They are adding more hotel rooms, slot machines and table games since they are seeing an increase in activity and demand. The revenue by casino is well diversified as not one casino contributes more than 40% to overall revenue. Although, Century does face some competition in many of their markets, they have shown, that while they are small, they can continue to cut costs and raise revenue by accurately determining what their customers want. They are also a market leader in Poland and cruise ships. Each casino is operated with separate goals for the area: some focus more on events and special promotions while others focus on diversifying table and slot machine options.

    What I really like is Century's cash position. They have $32 million in cash which is 18 % of assets and is more than enough to cover both the long and short term liabilities of $24 million. Debt has been aggressively paid down in recent years and they are in a good position for acquisition or building more casinos. This flexibility allows them to weather any storms and quickly act on any opportunity.

    I like the small amount goodwill since a large amount in the gaming industry is usually signs of trouble. This is because the projected revenue and liabilities can usually be estimated very accurately and therefore the purchase price should closely reflect the future earnings potential. High goodwill can mean overpayment, or lack of due diligence by the company, either of which is bad for investors.

    The margins are increasing which is good to see but they are still far from the lead for the industry. The low valuation helps its case. As Century continues to grow, as it is in Europe and other new areas, the margins should get better. Century is expanding but it is careful not to expand too rapidly for its capital needs. The additional 33.3% stake in the Poland casinos for $6.8 million should bring in an extra $1 million in net earnings per year. Yet with the high growth in Poland, I think the additional earnings will be much more than that.

    There is plenty of risk associated with this stock but is should also be less correlated with a market correction.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

    Tags: CNTY
    Jul 28 8:14 PM | Link | Comment!
  • HLF Pulls Back: Should You Buy?

    Herbalife Pulls Back: Should You Buy?

    Herbalife (NYSE:HLF) is a health and personal-care producer. It rose to almost $55 over the past few months and recently has fallen over 3% the last 5 trading days. The fall has occurred because of the SEC questioning about disclosures on sales by distributors. Although these questions were warranted, the investor overreaction created a great buying opportunity.

    Income Statement & Cash Flow

    Let's look at its financials first. Over the past three years revenue growth has averaged 13.6% while the industry had just 1.4%. Earnings have averaged 25.2% over the same period. The ROE is 5 times the industry average at 105%. Operating margin and net margin are both higher than the industry average at 16.6% and 12.1%, respectively. The margins are about 4% higher than the industry and are sustainable because of popular products. The cash flow from operations and free cash flow have been increasing over the past 5 years. The receivables have also risen consistently over the years. This is an important relationship as it shows the cash flows are sustainable over time and have not occurred from other operations.

    Balance Sheet

    HLF has also been accumulating cash on the balance sheet while reducing its long-term debt load. The debt has risen over the last quarter, though, and the debt-to-equity ratio is now 2.05 from 0.36. This debt, as others covering this stock have mention, comes not from the need to fund normal operations but for share buybacks and dividend payments. I do not think this is a good idea as it seems to falsely increase the EPS and when increasing the debt load does not help investors overtime, even with such low interest rates. The quick and current ratios are at healthy levels and rising. The quick could be higher as it is sitting at 0.70 and it would be nice if it were at least 1. The operating expenses have decreased as well overtime: about 3% over 4 years. This has helped improve its profit margins by about 3% over the same period. I like to see a company both increasing profits and decreasing costs. It shows me that they understand that when growth slows they can still perform well. Also it usually keeps them ahead of competitors. I would like to see an increasing efficiency in asset turnover, inventory turnover, and cash conversion cycle, but they are increasing slowly with the higher growth. Currently they are still at competitive levels.


    The valuations are surprisingly good with such great growth numbers. Below is a table that summarizes the valuations.




















    The valuations are lower than the industry average except for P/B. P/B is not as important for a retailer as it is for one that has more asset based revenue such as banks and energy companies. The future growth looks good as well. The 5 year growth forecast is 14.3% and it is a strong buy according to most analysts following HLF. With HLF's investment decisions and business plan they should be able to meet this expected growth consistently.

    Sales by Region & Product Category

    HLF sells its products in 6 main regions: North America, Mexico, South & Central America, EMEA, APAC, and China. All of its sales have increased from 2010 to 2011 with large growth in emerging markets. Furthermore, all of the categories in which they sell (weight management, nutrition, fitness, etc.) have increased at least 16% over the same period. I would like to see more distribution of products since more than half are in weight management. I do like the good distribution over many regions. Even though HLF is not an emerging markets play, they stand to benefit from a variety of emerging and developed markets.

    Sales by Region


    2011 Net Sales ($M)

    2010 Net Sales ($M)

    Change in Net Sales (%)

    North America








    South & Central America




















    Sales by Product Category


    2011 Net Sales ($M)

    2010 Net Sales ($M)

    Change in Net Sales (%)

    Weight Management




    Targeted Nutrition




    Energy, Sports, Fitness




    Other Nutrition




    Literature, Other









    Herbalife is a great buy. With financials better than the industry average and sustainable growth in operations, HLF will succeed over time. HLF has sales all over the globe and in a variety of products.

    Disclosure: I am long HLF.

    Tags: HLF
    Aug 15 4:50 PM | Link | Comment!
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