Golden Entertainment, Inc (GEDN) is a diversified group of gaming companies that focus on distributed gaming (including tavern gaming) and ...

Weekly Superstock Scan 25 Apr 2016 - 29 Apr 2016: GDEN

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Golden Entertainment, Inc (GEDN) is a diversified group of gaming companies that focus on distributed gaming (including tavern gaming) and casino and resort operations. On July 31, 2015, Sartini Gaming, Inc. merged with a subsidiary of Lakes Entertainment and the Company was subsequently renamed Golden Entertainment. It is important to note that the fourth quarter of 2015 marks the first full quarter of inclusion in the GEDN's results the distributed gaming and casino businesses of Sartini Gaming.





GDEN operates in two segments - distributed gaming and casinos. In the distributed gaming segment, GDEN operates gaming maching at grocery stores, convenience stores, restaurants, etc and operates 48 taverns with gaming machines. It is the largest operator of distributed gaming in Nevada. In the casinos segment, GDEN operates three casinos in Pahrump, Nevada and Rocky Gap Casino Resort in Flintstone, Maryland.

Technical


Strong Breakout from Gentle-slopping Base

The chart for GDEN has been nothing short of boring since the beginning of 2015. It was only from the middle of 2015, after the merger, when GDEN started to slowly creep up in price. Last week, GDEN has a strong breakout with a 10 per cent increase in price with 5 times average weekly volume.

The event that lead to the breakout was an announcement made on the April 18, 2016. Golden Entertainment, Inc. entered into a definitive agreement to acquire substantially all of the assets of
Amusement Services, which currently operates more than 1,800 gaming devices located in approximately 180 retail locations across the state of Montana.

Fundamental



Comparable Results Shows Growth before Fully Realising Synergies

The figures in the chart above can be taken with a pinch of salt since the results for fourth quarter cannot be compared with prior quarters as it takes into account contributions from Sartini. 

In the quarterly report, GDEN has provided comparison for 4Q2015 results with the combined results for 4Q2014. On a year-on-year basis, revenue grew 3.2% while EBITA grew 7.4%, mostly driven by the distributed gaming segment.

The management estimated $3 million of synergies can be achieved by the merger, and only about $1.25 million was achieved in 2015. The remaining will be achieved in 2016 together with a cut in incremental transition cost of $400,000.

Entry into Montana

Golden was previously granted a gaming license in the State of Montana. Since the merger, GDEN took no time to expand into Montana. In January, GDEN acquired C. Lohman Games, Inc., Rocky Mountain Gaming, Inc. and Brandy’s Shoreliner Restaurant, Inc. The acquisition will add approximately 1140 gaming devices.

In April, as mentioned earlier, GDEN acquired all the assets of Amusement Services, LLC which will further add more than 1800 devices in 180 retail locations across Montana.

The two acquisitions will make GDEN the second largest distributed gaming operator in the state and are expected to be immediately accretive.

Organic Growth

Apart from acquisitions, GDEN is also expanding through organic growth. In 2016, GDEN plans to add six new tavern locations in Las Vegas and add on 312 gaming devices in 34 locations. 

GDEN is also making a series of changes at Rocky Gap including car park expansions and remodeling. This is another benefit of the merger as the experienced Sartini family will be able to use their expertise to improve the assets previously owned by Lakes Entertainment.


Risk Factors/ Things I do not Like

  • High Debt - GDEN has $170 million of debt compared to $380 million of assets. While some debts are used for acquisitions that are immediately accretive such as the Montana acquisitions, other capital expenditure takes time to bring in earnings and add on to fixed cost and interest expenses.
  • Loss Making Quarter - GDEN only has one quarter of result to show since the merger. Excluding the recovery of impariment on notes receivable, GDEN did slightly worse than breakeven. While Montana's contribution, synergies and reduction of merger expenses will most likely case GDEN to report a profit next quarter, it is hard to gauge the upcoming earnings and the current P/E ratio of the company.
  • Large Float/Volume Ratio - GDEN has a float of over 7 million shares and an average daily volume of just 37,500 shares. The float is thus 200 times its daily volume. With this big ratio, it is difficult for the stocks to move up significantly without drastic increase in volume. However, the dollar value of the float is around 80 million dollars. Large institutions will be able to move this stock easily.

Potential trade setup


This is just the first week of the breakout, it is difficult to know what is happening next with this aggressively expanding company. All we can do now is to wait for a low risk entry, either when it retrace back to the magic line around the $11 level, or when it closes light and tight in the coming weeks.

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Previous Superstocks

EXFO (Posted on 10th Apr 2016 Watchlist)
Continue to go up, pending pullback.

BORN (Posted on 3rd Apr 2016 Watchlist)
Waiting for pullback at 30wMA with low volume and range. Very close to 30wMA

ELMD (Posted on 3rd Apr 2016 Watchlist)
Entered @ 4.2

PLPM (Posted on 27th Mar 2016 Watchlist)
Missed a low-risk entry point and price took off

ATSG (Posted on 13th Mar Watchlist)
Re-initiating coverage as price closes tightly in past few weeks and 10wMA is catching up.

SNC (Posted on 6th Mar 2016 Watchlist)
Entered at 11.95 this week.

JRJC (Posted on 14th Feb 2016 Watchlist)
Looking to buy at upward trendline and 10wMA in the 4.90 region. 

EDUC (Posted on 24th Jan 2016 Watchlist)
Entered @ 9.95.

VRA (Posted on 11th Jan 2016 Watchlist)
Entered @ 14.4 and Exited at 17.25. May re-enter at 20wMA.




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