public company report: great canadian gaming corp. · pdf file2 public company report: great...

Sarah Dashow

LIS 9323 | July 16, 2015

PUBLIC COMPANY REPORT: GREAT CANADIAN GAMING

CORP.

1 Public Company Report: Great Canadian Gaming Corp.

Contents Background .................................................................................................................................. 2

General Information ................................................................................................................ 2

Company History ..................................................................................................................... 2

Industry Information ............................................................................................................... 2

Organizational Components .................................................................................................... 2

Principals .................................................................................................................................. 3

Company Performance ............................................................................................................... 4

Key Indicators .......................................................................................................................... 4

Key Ratios ................................................................................................................................ 4

Industry Comparison (2015) .................................................................................................... 4

Credit Ratings........................................................................................................................... 4

Top Five Competition .............................................................................................................. 4

Analyst Reports ........................................................................................................................ 5

Industry Reports ...................................................................................................................... 5

Market Reports ........................................................................................................................ 6

Company Assets .......................................................................................................................... 6

Top Tangible Assets ................................................................................................................. 6

Intangible Property .................................................................................................................. 6

Company Developments ............................................................................................................. 6

News and Trade ....................................................................................................................... 6

Regulatory Actions ................................................................................................................... 8

Legal Proceedings .................................................................................................................... 8

Awards and Community Involvement ..................................................................................... 9

Appendix A – Key Indicators...................................................................................................... 10

Appendix B – Key Ratios ............................................................................................................ 11

Appendix C – Graph: Canada Casino Gaming Market Revenue 2006-2015 ............................. 12

Appendix D – Graph: Global Casino Gaming Market 2010-2015 .............................................. 13

Appendix E – Graph: Gambling Opinion – Moral Issue ............................................................. 14


Background General Information

Company: Great Canadian Gaming Corp. Date of Establishment: 1982 Jurisdiction: Canada and United States Ticker Symbol: GC Number of Employees: 4500 Gross Sales: $366.3 million Headquarters Location: Richmond, BC, Canada Operation Locations: Canada - Sydney, NS; Halifax, NS; Dundas, ON; Innisfil, ON; Dawson Creek, BC; Nanaimo, BC; Victoria, BC; Vancouver, BC; Richmond, BC; Coquitlam, BC; Surrey, BC; Maple Ridge, BC; Chilliwack, BC United States - Everett, WA; Kent, WA; Tukwila, WA; Lakewood, WA

Company History

The Great Canadian Gaming Corp. started as the Great Canadian Casino Company Ltd.

The company was founded in 1982 and operated charity casinos in a variety of locations in

addition to the Pacific National Exhibition casino and midway games. In the following years,

they opened casinos across British Columbia, including the first permanent casino on

Vancouver Island. In 2004, the company was listed on the Toronto Stock Exchange, and they

expanded into the horse-racing industry. They currently operate 17 gaming facilities. Financial

trends in the recent years suggest that they are growing at a steady rate each year.

Industry Information

Primary Industry Codes

7011 Hotels and Motels (SIC)

721120 Casino Hotels (NAICS)

GC is primarily in the consumer entertainment industry. They are involved “in the operation of

gaming centers, casinos, show theaters, racetracks, and other facilities.” They also operate

under the secondary codes of “Amusement and recreation, nec (7999)” and “Casinos (except

Casino Hotels) (713210).”

Primary Industry Classification

Casinos and Gaming

Hotels, Resorts and Cruise Lines

Organizational Components

The company is composed mainly of subsidiaries in Canada, which includes Casino Nova

Scotia in Halifax, Flamboro Downs Limited in Dundas, Georgian Downs Limited in Innisfil, Great

Canadian Casinos Inc. in Victoria, and Orangeville Raceway Limited and YBC Teletheatre B.C.

Ltd. in Surrey. There is also one subsidiary located in the US, the Great American Gaming Corp.,


which has its own subsidiary, the Evergreen Entertainment Corporation; both of which are

located in the state of Washington.

Principals

Top Five Individuals/Shareholders

LexisNexis

1. Baker (Neil W)

2. Estate of Ross J. McLeod

3. Ridge Capital Amalgamated Corp.

4. RBC Global Asset Management Inc.

5. Norges Bank Investment Management

Thomson One

1. Baker (Neil W)

2. Estate of Ross McLeod

3. O’Shaughnessy Asset Management, LLC

4. Norges Bank Investment Management (NBIM)

5. Dimensional Fund Advisors, L.P.

Officers and Senior Management1

Rod N. Baker – President & Chief Executive Officer

Kiran Rao- Chief Financial Officer

Terrance Doyle -Executive Vice President, BC Operations & Development

Peter Goudron- Executive Vice President, Strategic Resources

Vic Poleschuk - Executive Vice President, Operations – East

Walter Soo - Executive Vice-President, Player & Gaming Development

William D. (“David”) Fretz - President, Great American Gaming Corporation & Vice

President, American Operations

Chuck Keeling - Vice President, Stakeholder Relations & Responsible Gaming

Robert G. Kroeker - Vice President, Corporate Security & Compliance

Jim McGrogan - Vice President, Business Development

Alasdair Douglas - Vice President, Marketing

Board of Directors2

William A. Dimma - Director

Rod N. Baker - Director, President and Chief Executive Officer

Neil W. Baker - Director

Larry W. Campbell - Director

Mark A. Davis -Director

Thomas W. Gaffney - Director

Peter G. Meredith – Chairman

1 http://gcgaming.com 2 http://gcgaming.com


David L. Prupas - Director

Karen Keilty - Director

Company Performance Key Indicators

The key indicators (Appendix A) show an increased growth in revenue and a decrease in capital

expenditures; however, operating costs had a significant increase in 2014 after remaining

steady the previous two years. As the company grows in revenue, it is expected that the assets

and liabilities will grow with it, as seen here. Of note is that correlating with the significant

decrease in capital expenditures and revenue is the loss of 100 employees, which could account

for the money accrued by the company over fiscal year 2014 due to savings in reduction of

salaries to pay.

Key Ratios

The key ratios (Appendix B) suggest general company growth in 2012 and 2013, with a more

significant growth in 2014. They also show that the company was able to move out of the

negative in 2012 to more stable and positive numbers in the following years. This suggests

longevity as it provides proof that GC management is able to respond and react to negative

impacts effectively.

Industry Comparison (2015)

According to financial data from 2015, GC falls mostly in the high-middle of the competition.

Considering revenue as of July 2015, their 348.9 falls pretty solidly above the median of 203.8.

If considering closing prices, GC again falls near the median of 16.93 with 17.67 as their last

closing price. When factoring in total enterprise value, they are well above the median of 373.7

with their latest value of 1,312.9. The high in this category is 5,141.1 and the low is 21.7, which

places GC well ahead of the lesser competition in enterprise value. Overall, the company stands

firmly in the middle and has remained as such for the last 3 fiscal years implying consistency in

the industry.

Credit Ratings

As of June 2015, the company’s long term rating is type LT Corporate Family Ratings and

was Ba3, not on watch. The short term rating is type Speculative Grade Liquidity Rating and was

SGL-1, not on watch. The outlook for GC is stable (Moody’s).

According to Capital IQ’s credit health panel, the company’s relative credit score is top

in solvency; however, they fall below average in some categories such as total revenue, total

equity, return on capital, and asset turnover, among others. They are in the red on total debt to

capital ratio and total debt to revenue ratio.

Top Five Competition

1. MGM Resorts International (Las Vegas, NV, USA)

2. Wynn Macau Ltd. (Macau)

3. Penn National Gaming Inc. (Wyomissing, PA)


4. Boyd Gaming Corporation (Las Vegas, NV)

5. Pinnacle Entertainment Inc. (Las Vegas, NV)

The company’s main competition are other casino and resort companies. Of note is that 3 of

the 5 competitors are located in Las Vegas. This would make sense as Las Vegas is an area with

a strong reputation in the casino industry and a very popular tourist destination that would

drive revenue. This list was produced using LTM Revenue and only consists of disclosures from

within the last two years.

Analyst Reports

The McGraw Hill Companies, Inc. “Great Canadian Gaming Corporation to Commence

Solicitation of Consents to Amend the Trust Indenture.” April 27, 2015. Available from

LexisNexis, accessed July 16, 2015.

The Great Canadian Gaming Corp. wanted to obtain approval via consent for a certain

amendment to an Indenture that would allow them to make payments that would have been

restricted otherwise. This would allow the company greater freedom in the remaining 7-years

of this term to repurchase common shares, pay cash dividends, and make shareholder

distributions.

Ubiquick SAS. “Analyzing the Casinos and Gambling Industry in Canada.” March 1, 2013.

Available from LexisNexis, accessed July 16, 2015.

This report looks at the casino and gaming industry in Canada. While it does not focus

on GC exclusively, it covers the steady and moderate growth of the casino industry within

Canada through industry outlook, value analysis, demand, trade, and a multitude of other

factors. It discusses GC as one of the established players in the industry.

Credit Suisse. “First Edition Canadian Alert: Highlights from Canada.” May 13, 2015. Available

from Thomson One, accessed July 16, 2015.

This report looks at three companies for estimate/target prices changes and one for

company updates. It covers Great Canadian Gaming Corp. under estimate/target price changes.

The analyst highlighted the agreement to buy Casino New Brunswick which is favorable

compared to the current 2015 estimates and mostly in-line with US peers. This transaction

should close by fall 2015. Finally, the analyst expresses that GC remains active in modernizing

gaming in Ontario, and gives them a neutral rating based on share price, a fair reflection of their

growth prospects.

Industry Reports

IBISWorld Industry Report 71320CA – Gambling in Canada3

Market Line Advantage – Canada-Casinos & Gaming4

Industry Canada – Report for: NAICS 7132 – Casinos (except casino hotels)5

3 http://clients1.ibisworld.com.proxy1.lib.uwo.ca/reports/ca/industry/default.aspx?entid=1662 4 http://advantage.marketline.com.proxy1.lib.uwo.ca/Product?pid=MLIP1470-0004 5 https://www.ic.gc.ca/app/sme-pme/bnchmrkngtl/rprt-flw.pub?execution=e2s3


Market Reports

The graphic in Appendix A depicts the casino market from 2006 until 2010, and the

projected market size from 2011 to 2015 in Canada. It implies that revenue will continue to

grow, which aligns with the growth in GC’s revenue over the past few years.

The graphic in Appendix B shows a breakdown of casino and gambling revenue by

geographical region. Despite GC’s large presence in Canada, it highlights that most of the

gaming industry comes from the US, which could have an effect on GC’s US subsidiary.

The graphic in Appendix C reflects the consumer options of whether gambling is a

normal issue. Other countries have been removed from the chart in order to conserve space, in

addition to limiting the focus to two of GC’s jurisdictions plus Britain for comparison. This graph

implies that the success of GC and the company growth could be the direct result of consumer

opinion being over 50% indifferent to gambling as a moral issue.

Company Assets

Top Tangible Assets

Great Canadian Gaming Corp. owns 17 casino and gaming facilities and the land they

operate on. Also of note from recent annual reports is all plants and equipment located on

these properties. Some of these are Hard Rock Casino Resort, Fraser Downs Racetrack and

Casino, Casino Nova Scotia Sydney, and Great American Casinos.

Intangible Property

Great Canadian Gaming Corp. holds some trademarks on the names of their casino

businesses; however, the annual report does not outline the details only a renewal of some

assets in Nova Scotia.

Company Developments News and Trade

Korstrom, Glen. “$100,000-per-hand table games fuel $1.25 billion BCLC profit.” Business

Vancouver. July 16, 2015. Available from Mergent Online, accessed July 17, 2015.6

This news piece covers the British Columbia Lottery Corp choice to increase table limits.

This is important to GC, because this report says that they have had these higher limits in their

VIP rooms for the past year, so this is an example of how these casinos compete for revenue,

and it has worked positively for both companies. However, the availability of these higher limit

tables at other casinos could negatively impact consumer use of GC’s facilities.

Stuek, Wendy. “At the track; own two racehorses for a year for $250.” The Globe and Mail. July

7, 2015. Available from LexisNexis, accessed July 17, 2015.7

This article discusses the opportunity to invest in a horse at the Hastings Race Club. As

GC owns this race club, it is important in that an article such as this which discusses a consumer

buy-in available at one of their facilities could bring consumers in that would have not

previously been reached. Any positive publicity such as this is beneficial to the company.

6 https://www.biv.com/article/2015/7/100000-hand-table-games-fuel-125-billion-bclc-prof/ 7 http://www.lexisnexis.com.proxy1.lib.uwo.ca/hottopics/lnacademic/?verb=sf&sfi=AC02NBCmpDosSrch


Reagan. “Insider Selling: Desmond Balakrishnan Sells 3,400,000 Shares of Great Canadian

Gaming Stock.” The Legacy. July 1, 2012. Available from Mergent Online, accessed July 17,

2015.8

This news piece provides some insight into insider trading that ties into recent analysis

of GC shares from a number of companies. TD reported a raise in target price on shares and

gave GC a “buy” rating along with four other analysts. Scotiabank predicts that GC will

“outperform” previous years. This is important because a positive analysis such as this could

lead to an increase in stock sales for GC.

“Casino News Brunswick sold to Great Canadian Gaming.” Casino City Times. June 5, 2012.

Available from Mergent Online, accessed July 17, 2015.9

This is a brief news piece that states simply that GC has purchased a new casino for $95

million. This is relevant because it presents an increase in holdings and suggests a positive

outlook as there is room for expansion.

“Great CDN to buy 3.4 million shares from McLeod Estate.” Alpha Stox. May 25, 2015. Available

from Mergent Online, accessed July 17, 2015.10

This articles covers the purchase of shares from deceased ex-director and officer of GC,

Ross J. McLeod. This was done in order to cancel the shares. The company released a statement

saying that this would be a great opportunity to increase shareholder value and ensured

shareholders that they have the cash reserves and credit required to not only make this

purchase but move forward with other plans, such as the purchase of the aforementioned New

Brunswick Casino.

Smith, Nelson. “Should you gamble on Amaya Inc. or Great Canadian Gaming Corporation?” The

Motley Fool. March 18, 2015. Accessed July 17, 2015.11

This is an article analyzing the potential of GC and one of its competitors, Amaya Inc. It is

relevant because it provides a direct point of comparison for investors and could influence

whether shareholders choose GC as an investment. Smith provides some positive feedback

about GC stating that their positive government relationship makes them an ideal company for

expanding or buying out competitors, but in order to continue to grow, they should build or

acquire new properties.

Erskine, Bruce. “Great Canadian Gaming hits jackpot, but Halifax, Sydney casino cash dips.”

Herald Business. August 15, 2015. Accessed July 17, 2015.12

This article highlights a massive success for GC in a 75% growth report in 2014 compared

to the same quarter in 2013. This performance was related to River Rock and Hard Rock Casino

Vancouver, and they announce that they will be using the funds to continue to invest in Nova

8 http://www.lulegacy.com/2015/07/01/insider-selling-desmond-balakrishnan-sells-3400000-shares-of-great-canadian-gaming-stock-gc/529363/ 9 http://www.casinocitytimes.com/news/article/casino-new-brunswick-sold-to-great-canadian-gaming-213186 10 http://my.alphastox.com/great-cdn-to-buy-3-4-million-shares-from-mcleod-estate/ 11 http://www.fool.ca/2015/03/18/should-you-gamble-on-amaya-inc-or-great-canadian-gaming-corporation/ 12 http://thechronicleherald.ca/business/1229675-great-canadian-gaming-hits-jackpot-but-halifax-sydney-casino-cash-dips


Scotia despite less market value in that location. This is important because it shows how

management chooses to invest surplus and could be used to predict future decisions.

Ula, Frances. “Vision’s campaign ready for war; Vancouver’s ruling party has already raised

$2.2-million this year, as parties reveal their finances ahead of the vote.” The Globe and Mail.

November 7, 2014. Available through LexisNexis, accessed July 17, 2015.13

While this articles mainly focuses on how Vancouver’s ruling civic party is raising money.

Of note is that of these donations, GC provided $10,000. This shows an interest in being

involved with local politics and the community.

Wingrove, Josh. “Wallin, Gerstein and others have earned millions of dollars outside of

Senate…” The Globe and Mail. November 9, 2013. Available through LexisNexis, accessed July

17, 2015.14

This article is about politicians who make money outside of their main job. Of note is a

mention of Larry Campbell who is a current board member at GC. This is relevant because it

provides some insight into the people that serve on GC’s board and who are influential in

making decisions.

Avery, Simon. “Great Canadian Gaming: Winning hand or roll of the dice?” The Globe and Mail.

May 2, 2011. Accessed July 17, 2015.15

This article was written when GC was underperforming in 2011, and they were making

moves to increase revenue and strengthen their stock. It highlights the acquisition of Chilliwack

Bingo Association where GC planned to build a community gaming centre that should add $4-

million to annual revenue, but the article also discusses challenges that GC could face, such as

rising gas prices and wage inflation which could affect this potential positive in revenue

generation. Articles like this are important for determining potential and outlook of a company

and providing insight into their decision making.

Regulatory Actions

The only recent regulatory actions for GC involve the news article related to buying the McLeod

estate shares. This required regulatory approvals in order to proceed as the purchase would be

exempt according to Multilateral Instrument 62-104 Take-Over Bids and Issuers Bids.16

Legal Proceedings

“Lawsuit of the week: Former table games boss sues Great Canadian Gaming for wrongful

termination.” Business Vancouver. July 7, 2015.17

This case has no yet reached the courts, and GC has not yet filed a report. Robert

McIntyre is the former director of table game operations and is suing for wrongful termination

(without proper notice) after 30 years with GC. He is suing for damages for a breach of contract.

13 http://www.lexisnexis.com.proxy1.lib.uwo.ca/hottopics/lnacademic/?verb=sf&sfi=AC02NBCmpDosSrch 14 http://www.lexisnexis.com.proxy1.lib.uwo.ca/hottopics/lnacademic/?verb=sf&sfi=AC02NBCmpDosSrch 15 http://www.theglobeandmail.com/globe-investor/investment-ideas/great-canadian-gaming-winning-hand-or-roll-of-the-dice/article598383/ 16 https://ca.finance.yahoo.com/news/great-canadian-gaming-buy-back-110000760.html 17 https://www.biv.com/article/2015/7/lawsuit-week-former-table-games-boss-sues-great-ca/


This case can have a major effect on GC’s reputation if they are discovered to be involved with

questionable hiring practices in order to save money from paying out performance incentives

and cash awards to long-time employees.

Proctor, Jason. “BC Lottery Corporation sued for allegedly taking casino cash.” CBC. March 29,

2015.18

This case is still under review; GC has refused to comment and none of the claims have

been proven in court. This lawsuit responds to a marketing trust account agreement between

BCLC and casino companies with over 300 slot machines; it outlines that companies were

required to contribute money to fund campaigns that promoted casinos in a socially

responsible way. This contract was terminated by BCLC in 2009, but GC is claiming that BCLC

has taken $18-million since. This is important because this could either provide bad press for GC

making a claim for something that is not happening, or if it is true, then this is money that is

being taken from their revenue without an agreement to back it which could negatively impact

the company’s growth.

Awards and Community Involvement

2011 – Volunteerism and Community Service Award (Canadian Gaming Industry)19

GC funded 1607 community groups throughout 2013/2014. There is direct community support

through GC’s PROUD program, which supports charitable and community organization through

financial and volunteer opportunities.

GC donated $36.5-million to local municipalities in 2013/2014.

18 http://www.cbc.ca/news/canada/british-columbia/b-c-lottery-corporation-sued-for-allegedly-taking-casino-cash-1.3013077 19 http://www.canadiangamingbusiness.com/CanadianGamingIndustryAwardWinners.aspx


Appendix A – Key Indicators

FY2014

Total Revenue $446,500

Operating Income $133,000

Capital Expenditures ($14,800)

Total Assets $1,014,100

Total Liabilities $613,800

Employees 4500

FY2013




Total Assets $915,700


Employees 4600

FY2012




Total Assets $862,700


Employees 4600


Appendix B – Key Ratios

FY2014

Profitability

Gross Margin 63.1%

Operating Margin 17.6%

Net Profit Margin 17.6%

Financial Strength

Current Ratio 4.8x

Debt/Equity Ratio 110.4%

Management Effectiveness

Return on Assets 8.4%

Return on Equity 22.2%

FY2013

Profitability

Gross Margin 60.6%

Operating Margin 15.5%

Net Profit Margin 15.5%

Financial Strength

Current Ratio 3.0x




Return on Equity 21.5%

FY2012

Profitability

Gross Margin 60.4%

Operating Margin (6.8%)

Net Profit Margin (6.8%)

Financial Strength

Current Ratio 2.1x




Return on Equity (7.9%)


Appendix C – Graph: Canada Casino Gaming Market Revenue 2006-2015


Appendix D – Graph: Global Casino Gaming Market 2010-2015


Appendix E – Graph: Gambling Opinion – Moral Issue

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