Nevada Gold Casinos

Buy Price
Holding Type
Investment Theme
Trade Date
August 2, 2016

Nevada Gold Casinos (UWN)… (August 2, 2016)

I started to purchase this stock at $1.96 per share. This is a casino operator with 9 mini-casinos (cardrooms) in WA, 705 slot machines (route operator) in SD, and 1 full casino in Henderson, NV.

With 17.8m shares outstanding, UWN has a $35m market cap and $5.3m in net debt for a $40.3m EV. FY16 EBITDA was $7.8m for a 5.2x multiple. The kicker is that the company purchased a NV casino in Dec 2015 meaning only 5 months of results were included in FY16. This should mean closer to $9m in FY17 EBITDA without any growth assumed. Free cash flow was $5.7m in 2016 ($5.3m, $3m and $2.9m in the previous 3 years, respectively) for a 16% yield. Management announced a $2m share buyback (~6%) and it would be reasonable to assume that free cash flow brings net debt to zero by next year. At 6x EBITDA of $9m this company should be worth $54m for a $3 stock. That is 50% upside from here on what looks to be a reasonably clean business.

In addition, there are some other hidden assets on the balance sheet in a $1.1m note receivable (collected through 2017) and a $750k note for a land sale.

Management has done a nice job of growing and acquiring. This could turn into a small-cap compounder.

UPDATE: I had accumulated a total of 12,538 shares of UWN from 8/4/16 to 10/27/16 @ prices ranging from $1.67 to $1.96 per share (total basis was $1.83). So far, I have sold 8,538 shares from 3/30/17 to 1/19/18 at an average price of $2.33 per share (total return of 27% to date). I still own 4,000 shares (one third of original position). Current share price is $2.69. Stock is still somewhat cheap and plan to let the position ride from here.

UPDATE 2.0: Bought 7000 shares at $2.13 today (6/28/18) to reload the position. Management announced they were selling the Club Fortune casino in Henderson for $14.6m or 8.5x trailing EBITDA, also sold the South Dakota business for $650k, and corporate overhead will be lowered by $1.2m. This means pro-forma EBITDA of around $6-6.5m with net cash of $10-12m. At $2.13, market cap is $36m for a $24-26m EV (3.8-4.5x EBITDA).  Bought another 7330 shares at $1.91 from 6/29 to 7/11. Total share count is now 17,330 with a cost basis of $1.98.

UPDATE 3.0: Company announced it would sell itself entirely by yearend 2018 at a price of $2.50 per share (much lower than I anticipated but still a positive result). I sold 4000 shares at $2.40 on 11/30/18.