The COVID-19 pandemic was hard on Canadian casino stocks. In reality, there are only two options here in Canada and as you can see below, both of them suffered huge losses when the economy shut down and we experienced the lockdowns.
Now that we are on the back end of the pandemic and it seems to be somewhat in the rear view mirror, these stocks are becoming attractive again. Investors looking to buy Canadian stocks want rebound plays that aren't simply hype, but strong companies that have a good chance of providing long-standing returns.
Great Canadian Gaming Corp (TSE:GC) stock
Great Canadian Gaming Corp is the largest casino stock here in Canada, primarily operating in 3 key segments based on location, being Ontario, Atlantic, and British Columbia. The company offers everything from slot machines, to hotels, to horse racing tracks.
To say the company was impacted severely by the pandemic would be an understatement. Revenue collapsed from the $1.35B range in 2019 to just $442 million in 2020.
As casinos were not deemed essential services, Great Canadian Gaming had to wait on the sidelines as we battled the pandemic. In fact, 2020 was the first year the company posted negative net income since 2012.
When a situation like this happens, in order for a company to survive it needs to be extremely liquid. Which Great Canadian was, and still is. Despite the first quarter of 2021 dragging on results yet again due to the pandemic, it has nearly $440 million in cash on hand, and has just shy of $940 million available at its credit facilities.
This is liquidity that will unlikely be needed considering the inevitable reopening on the back half of 2021, but it should put investors minds at ease that even if the pandemic were to rage on due to a variant or some other situation, Great Canadian still has the capital to survive.
The main issue you'll have with this Canadian casino stock is the fact the company is closing in on being acquired by Apollo Global Management. The deal is expected to close in the second quarter of 2021, and although it makes no sense to buy Great Canadian right now due to the fact it provides next to no arbitrage opportunity trading just $0.25 below the offer price, it could present an opportunity if the deal were to fall through as the share price would inevitably fall.
Gamehost (TSE:GH) stock
Gamehost is much smaller than Great Canadian. In fact, Great Canadian is around 12 times the size, market cap wise.
So, Gamehost is very much a small/micro cap play in the Canadian casino sector and does pose significantly more risk for a few reasons.
For one, this is an Alberta Pureplay. The company operates slot machines, VLT's, table games, hotels, and food and beverage facilities inside the province of Alberta.
At the time of writing, Alberta is currently in its final stage of reopening, which includes Casinos finally being able to open their doors.
Gamehost saw its revenue crumble in 2020 much like Great Canadian, but the key difference is the company still managed to post a profitable year. Yes, earnings did shrink by over 66%, but it was still able to produce just over $6.5M in free cash flow in 2020.
So, the question many ask is whether or not Gamehost is a reasonable buy right now based on an economic reopening in Alberta. And the answer to that is, in my opinion, no.
Gamehost has recovered quite a bit in terms of price over the last 6 months, and it's likely most of the reopening expectations are already priced in. This is a company that is trading at 13 times forward earnings, despite having declining top and bottom line growth over the last decade.
If it paid a dividend, it might be worth paying for. However, a pure-growth play with shrinking revenue and earnings should be triggering alarm bells for investors.
The company likely benefitted from an economic boom in Alberta because of the price of oil through the early 2010's, but we can see the impacts of the recessionary environment the province is in now. Coming off of peak earnings per share of $0.95 in 2014, the company posted EPS of $0.63 in 2019 before the pandemic hit.
The company has negative working capital, and as expected, has added a lot of debt to the balance sheet in 2020.
Overall, there aren't many opportunities when it comes to Canadian casino stocks
When looking on the Toronto Stock Exchange, the two main options are either Great Canadian Gaming or Gamehost.
Great Canadian is on the verge of being acquired, while Gamehost provides a lackluster investment thesis, as growth has been shrinking and it operates in a province that is expected to struggle for the foreseeable future.
We could look to the venture for more gambling stocks in which you'll see companies like Evergreen Gaming (TNA), but they're much more volatile.
Great Canadian is on the verge of being acquired, and Gamehost really doesn't do much for me in terms of forward looking prospects. So in that regard, I don't see any Canadian casino stocks that are attractive at this point in time.
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