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  • AERL – Returns on equity that make private equity envious  1 comment
    Jul 6, 2010 11:42 AM | about stocks: IKGH

    Asia Entertainment & Resources (NASD: AERL) is a company I have become very familiar with over the past several months while it has come public via a SPAC called CS China Acquisition.   It is a VIP promoter in Macau which is the world’s largest and fastest growing casino market. The VIP or “high roller” segment plays baccarat and accounts for 60%+ of total Macau casino revenues. 

    Investment highlights

    ·  Robust cash flow: Free cash flow yield of 19% with return on investment in excess of 54% per annum.  AERL’s capex is negligible and its operating expenses are low unlike casino operators that have significant capital expenditures and high fixed operating costs. 

    ·  Cash from warrants accretive to EPS: EPS increases by $0.12 for each $10 mn of cash raised from the exercise of existing warrants ($55 mn).  Capital is the primary constraint for the growth of the VIP business.  AERL warrants are not the typical overhang but rather an enabler of continued accretive growth and expansion for AERL.

    ·  Investor friendly management:  Monthly reporting of rolling chip turnover provides an excellent indicator of future financial performance.  US management has a good track record of capital market success.

    Bottom line

    In a US equity market that is currently flooded with cheap esoteric Chinese companies, AERL differentiates itself with a high quality management team in a high growth position in an industry that is attractive to investors.  Expected catalysts are continued reporting of strong monthly rolling chip turnover statistics and expansion into new top tier casino VIP rooms.    

    To read the full analysis report please go to SPAC Analytics Blog

    Disclosure: Long AERLW

    Stocks: IKGH
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  • S Cohen
    , contributor
    Comments (8) | Send Message
    Earnings conference call is up on website:
    19 Jul 2010, 09:30 PM Reply Like
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