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UWN : When small is beautifull

|Includes:Nevada Gold & Casinos, Inc (UWN)
When small is beautiful: That could be the story of Nevada Gold & Casino Inc.
When I indicated that this corporation was under my radar last year:
(Shares were trading at 1,07$ at that time) I was far from believing that suddenly with some great acquisitions, that company could double its share price and that I would still believe that it was only the beginning. Think about that: market crash, unemployment in the 9%, no economic growth and your company double its market cap???  They definitely must have done something right and here is what I found and by the way based upon recent market activity, I am no longer the only one that is starting to be interested into that success story.
Naturally we should not compare UWN to some largest company like LVS, MPEL or WYNN as they are clearly not competitors. But it is very important to note that the entire entertainment sector has been very profitable lately especially in gambling outside the United States and this is where UWN does make a difference. They have been able to create their own niche in a very difficult market. So, what is this all about?
UWN owns and manage small scale casinos almost directed toward the clientele of Mr. everybody that does some gambling for fun and in an environment very friendly where customer seems to be the number one priority. One point that I should mention is the fact that all employees from their newest acquisition (Red Dragon) went to a customer service training seminar almost immediately after they finalized the acquisition.
It would also be very difficult to compare with any other company as there is not too many that are operating that kind of mini casinos and operating more than 1.
So, what should we expect form UWN ?
They have the intention to acquire some casinos in Nevada and it could add some 3-4M$ for each unit they buy BUT it could add to the total debt already in the 15M$ range.
And even if debt is a problem to come, especially with some being due in 2012, their latest association with Wells Fargo to find a refinancing solution could ease that one out if negotiations are successful. If they were to find a new loan agreement covering all the debt and at better terms and at somewhat a bit lower interest rate, this could give them a break and allow them to breathe easier.
On the other hand they have the right to issue up to 20M$ in stock and this would cover more than the total debt load leaving even some more money for other acquisitions.
If UWN consolidate their actual assets and integrate them rapidly they should be able to generate a lot more net revenues and be ready for some more expansion AS LONG as they do not have to overspend in company management. At this point, it would not be wise to get that expansion in areas that they do not operate actually due to overhead expenses.
So here are my expectations for Q2 2012 if everything goes as expected:
-          Net EBITDA of 1M$ (increase provided by increase in earnings, expenses staying at current level in % , lower management and legal expenses)
-          Earnings of 16M (due to the revenue increase from Reg Dragon)
-          Net revenue per share of 0,03 to 0,05
In my opinion they will definitely continue to be very aggressive in their development and as long as they stay within their ‘know how’ range there is no doubt that UWN will be a great winner in 2012. Markets will stabilize, unemployment will get better and consumer confidence will be brighter. All the needed elements will be in place to send UWN on track for a record year.
Yes this is not a lengthy analysis but I could come on with many more reasons why they are on the right track: great business model almost exclusive, passionate management, enthusiast employees and surely many more.
For these reasons, UWN is now a top pick for the remainder of 2011 and for 2012. Price expectations are within 2,90$ and 3,70$ before December 31st 2012 for a decent 50% to 100$ return.
Give them the favourable market conditions and UWN could means UW(i)N
As usual never invest more than you can afford to lose and always do your own due diligence before investing.

Disclosure: I am long UWN.
Stocks: UWN