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Selling Dover Downs Gaming Following Price Run-Up

Saj Karsan profile picture
Saj Karsan


  • Dover Downs Gaming Reported Only a So-So Quarter.
  • Nevertheless, its shares are up almost 50% in just the last 3 months.
  • The market appears to be betting on the fact that new legislation will help the company through these tough times.

Just over three months ago, I wrote about Dover Downs Gaming (NYSE:DDE) as a potential value idea. Since then, the stock has run up almost 50%. Considering not much has changed from a business standpoint, I felt it prudent to sell my shares and apply those funds instead to situations where the market is pessimistic rather than optimistic.

Dover reported a year-end quarter that was largely within expectations. Revenue was slightly less than the year-ago quarter while earnings were slightly negative (-0.02 cents/share). For the year, the company generated EBITDA of about $10 million, which was less than last year's EBITDA despite some regulatory benefits of about $1 million/quarter which kicked in half-way through this year.

What I suspect has been moving the price, however, is optimism that the company may receive even more regulatory benefits this year. In the earnings release, management rhetoric was more aggressive than usual in pushing for concessions, with statements like:

"During the year just ended, Dover Downs distributed $92 million to the state, the horsemen and the slot machine vendors."

"The share of gaming revenues we were left with was insufficient to cover all expenses, and as you can see, leaves an otherwise profitable business with a $706,000 loss for the year. "

"Clearly, this demonstrates the irrationality of the current gaming revenue sharing formula and the need for rebalancing. We will continue to make our case for change during the current session of the legislature which runs through June 30."

The state appears to be listening. In January, the state's gaming commission made recommendations to legislators to increase the state's share of vendor costs associated with slot machines, to eliminate the annual table game license fee, to reduce the state's share of table win, and to provide 5% credits of proceeds towards marketing and capex. It's not possible to calculate

This article was written by

Saj Karsan profile picture
Saj Karsan founded an investment and research firm that is based on the principles of value investing. He has an MBA from the Richard Ivey School of Business, has completed all three CFA exams, and has an engineering degree from McGill University. Visit his blog, Barel Karsan (http://barelkarsan.com/).

Analyst’s Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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