Intrinsic value of Great Canadian Gaming Corporation - GC

Previous Close

$46.31

  Intrinsic Value

$27.70

stock screener

  Rating & Target

sell

-40%

Previous close

$46.31

 
Intrinsic value

$27.70

 
Up/down potential

-40%

 
Rating

sell

We calculate the intrinsic value of GC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 2.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
Revenue, $m
  600
  635
  672
  711
  751
  793
  837
  883
  931
  981
  1,033
  1,088
  1,146
  1,206
  1,269
  1,335
  1,404
  1,477
  1,553
  1,632
  1,716
  1,804
  1,896
  1,992
  2,093
  2,200
  2,311
  2,428
  2,550
  2,679
Variable operating expenses, $m
  435
  461
  488
  515
  544
  575
  606
  640
  674
  710
  746
  786
  827
  871
  916
  964
  1,014
  1,066
  1,121
  1,179
  1,239
  1,302
  1,369
  1,439
  1,512
  1,588
  1,669
  1,753
  1,842
  1,935
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  435
  461
  488
  515
  544
  575
  606
  640
  674
  710
  746
  786
  827
  871
  916
  964
  1,014
  1,066
  1,121
  1,179
  1,239
  1,302
  1,369
  1,439
  1,512
  1,588
  1,669
  1,753
  1,842
  1,935
Operating income, $m
  165
  174
  185
  195
  206
  218
  230
  243
  256
  270
  287
  302
  318
  335
  353
  371
  390
  410
  431
  454
  477
  501
  527
  554
  582
  611
  642
  675
  709
  745
EBITDA, $m
  223
  237
  250
  265
  280
  295
  312
  329
  347
  365
  385
  405
  427
  449
  473
  497
  523
  550
  578
  608
  639
  672
  706
  742
  780
  819
  861
  904
  950
  998
Interest expense (income), $m
  34
  35
  39
  42
  45
  49
  52
  56
  60
  64
  69
  73
  78
  83
  88
  94
  100
  106
  112
  119
  126
  133
  141
  149
  157
  166
  175
  185
  195
  206
  217
Earnings before tax, $m
  129
  136
  143
  150
  158
  166
  174
  183
  192
  202
  214
  224
  235
  247
  259
  271
  284
  298
  313
  328
  344
  361
  378
  397
  416
  436
  457
  480
  503
  528
Tax expense, $m
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  58
  61
  64
  67
  70
  73
  77
  81
  84
  89
  93
  97
  102
  107
  112
  118
  123
  130
  136
  142
Net income, $m
  94
  99
  104
  110
  115
  121
  127
  134
  140
  147
  156
  164
  172
  180
  189
  198
  208
  218
  228
  239
  251
  263
  276
  290
  304
  318
  334
  350
  367
  385

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  906
  960
  1,016
  1,074
  1,134
  1,198
  1,264
  1,333
  1,406
  1,481
  1,561
  1,644
  1,730
  1,821
  1,917
  2,016
  2,121
  2,231
  2,345
  2,466
  2,592
  2,725
  2,864
  3,009
  3,162
  3,323
  3,491
  3,667
  3,853
  4,047
Adjusted assets (=assets-cash), $m
  906
  960
  1,016
  1,074
  1,134
  1,198
  1,264
  1,333
  1,406
  1,481
  1,561
  1,644
  1,730
  1,821
  1,917
  2,016
  2,121
  2,231
  2,345
  2,466
  2,592
  2,725
  2,864
  3,009
  3,162
  3,323
  3,491
  3,667
  3,853
  4,047
Revenue / Adjusted assets
  0.662
  0.661
  0.661
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
Average production assets, $m
  778
  823
  871
  921
  973
  1,028
  1,085
  1,144
  1,206
  1,271
  1,339
  1,410
  1,485
  1,563
  1,644
  1,730
  1,820
  1,914
  2,012
  2,116
  2,224
  2,338
  2,457
  2,582
  2,713
  2,851
  2,995
  3,146
  3,305
  3,472
Working capital, $m
  -66
  -70
  -74
  -78
  -83
  -87
  -92
  -97
  -102
  -108
  -114
  -120
  -126
  -133
  -140
  -147
  -154
  -162
  -171
  -180
  -189
  -198
  -209
  -219
  -230
  -242
  -254
  -267
  -281
  -295
Total debt, $m
  520
  564
  610
  657
  707
  759
  813
  870
  929
  991
  1,056
  1,124
  1,195
  1,269
  1,347
  1,428
  1,514
  1,604
  1,698
  1,796
  1,899
  2,008
  2,121
  2,241
  2,366
  2,497
  2,634
  2,779
  2,930
  3,090
Total liabilities, $m
  741
  785
  831
  878
  928
  980
  1,034
  1,091
  1,150
  1,212
  1,277
  1,345
  1,416
  1,490
  1,568
  1,649
  1,735
  1,825
  1,919
  2,017
  2,120
  2,229
  2,342
  2,462
  2,587
  2,718
  2,855
  3,000
  3,151
  3,311
Total equity, $m
  165
  175
  185
  195
  206
  218
  230
  243
  256
  270
  284
  299
  315
  331
  349
  367
  386
  406
  427
  449
  472
  496
  521
  548
  576
  605
  635
  667
  701
  737
Total liabilities and equity, $m
  906
  960
  1,016
  1,073
  1,134
  1,198
  1,264
  1,334
  1,406
  1,482
  1,561
  1,644
  1,731
  1,821
  1,917
  2,016
  2,121
  2,231
  2,346
  2,466
  2,592
  2,725
  2,863
  3,010
  3,163
  3,323
  3,490
  3,667
  3,852
  4,048
Debt-to-equity ratio
  3.150
  3.230
  3.300
  3.360
  3.420
  3.480
  3.530
  3.580
  3.630
  3.670
  3.720
  3.760
  3.790
  3.830
  3.860
  3.890
  3.920
  3.950
  3.980
  4.000
  4.030
  4.050
  4.070
  4.090
  4.110
  4.130
  4.150
  4.160
  4.180
  4.190
Adjusted equity ratio
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  94
  99
  104
  110
  115
  121
  127
  134
  140
  147
  156
  164
  172
  180
  189
  198
  208
  218
  228
  239
  251
  263
  276
  290
  304
  318
  334
  350
  367
  385
Depreciation, amort., depletion, $m
  59
  62
  66
  69
  73
  77
  81
  86
  90
  95
  98
  103
  108
  114
  120
  126
  133
  140
  147
  154
  162
  171
  179
  188
  198
  208
  219
  230
  241
  253
Funds from operations, $m
  153
  161
  170
  179
  188
  198
  209
  219
  230
  242
  254
  267
  280
  294
  309
  324
  340
  357
  375
  394
  413
  434
  455
  478
  502
  526
  553
  580
  609
  639
Change in working capital, $m
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
Cash from operations, $m
  157
  165
  174
  183
  193
  203
  213
  224
  236
  248
  260
  273
  286
  301
  316
  332
  348
  365
  384
  403
  423
  444
  466
  489
  513
  538
  565
  593
  622
  653
Maintenance CAPEX, $m
  -54
  -57
  -60
  -64
  -67
  -71
  -75
  -79
  -84
  -88
  -93
  -98
  -103
  -108
  -114
  -120
  -126
  -133
  -140
  -147
  -154
  -162
  -171
  -179
  -188
  -198
  -208
  -219
  -230
  -241
New CAPEX, $m
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -65
  -68
  -71
  -74
  -78
  -82
  -86
  -90
  -94
  -99
  -103
  -108
  -114
  -119
  -125
  -131
  -138
  -144
  -151
  -159
  -167
Cash from investing activities, $m
  -98
  -103
  -108
  -114
  -119
  -125
  -132
  -138
  -146
  -153
  -161
  -169
  -177
  -186
  -196
  -206
  -216
  -227
  -239
  -250
  -262
  -276
  -290
  -304
  -319
  -336
  -352
  -370
  -389
  -408
Free cash flow, $m
  59
  63
  66
  70
  74
  77
  81
  86
  90
  95
  99
  104
  109
  114
  120
  126
  132
  139
  145
  152
  160
  168
  176
  184
  193
  203
  212
  223
  233
  245
Issuance/(repayment) of debt, $m
  42
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
  99
  103
  108
  114
  119
  125
  131
  138
  144
  152
  159
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  42
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
  99
  103
  108
  114
  119
  125
  131
  138
  144
  152
  159
Total cash flow (excl. dividends), $m
  102
  106
  112
  117
  123
  129
  136
  142
  149
  157
  164
  172
  180
  189
  198
  208
  218
  228
  239
  251
  263
  276
  289
  303
  318
  334
  350
  367
  385
  404
Retained Cash Flow (-), $m
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
Prev. year cash balance distribution, $m
  229
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  322
  97
  102
  107
  112
  118
  124
  130
  136
  143
  149
  157
  164
  172
  181
  189
  199
  208
  218
  229
  240
  252
  264
  277
  290
  305
  319
  335
  351
  368
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  309
  89
  88
  88
  87
  85
  84
  81
  78
  75
  71
  67
  62
  58
  53
  48
  43
  38
  34
  29
  25
  21
  17
  14
  11
  9
  7
  5
  4
  3
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Great Canadian Gaming Corporation operates gaming, entertainment and hospitality facilities in British Columbia, Ontario, New Brunswick, Nova Scotia and Washington State. The Company has approximately 20 gaming properties, consisting of over three community gaming centers, four racetracks and 10 casinos, including over two with a Four Diamond resort hotel. In British Columbia, it operates over four casinos; one thoroughbred racetrack; a standardbred racetrack; three community gaming centers; a resort with over two hotels, a conference center and a marina; over two multi-purpose show theatres, and a range of restaurants. In Ontario, it owns over two racetracks. It operates over two casinos in the Province of Nova Scotia. It operates over three card rooms in Washington State, which are located in Tukwila, Lakewood and Everett. Its facilities include River Rock Casino Resort, Hard Rock Casino Vancouver, View Royal Casino, Casino Nanaimo, Chances Chilliwack and Great American Casino.

FINANCIAL RATIOS  of  Great Canadian Gaming Corporation (GC)

Valuation Ratios
P/E Ratio 37
Price to Sales 5
Price to Book 7.3
Price to Tangible Book
Price to Cash Flow 15.8
Price to Free Cash Flow 20.3
Growth Rates
Sales Growth Rate 22.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 160%
Cap. Spend. - 3 Yr. Gr. Rate 9.3%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 124.2%
Total Debt to Equity 124.2%
Interest Coverage 4
Management Effectiveness
Return On Assets 9.7%
Ret/ On Assets - 3 Yr. Avg. 10%
Return On Total Capital 9%
Ret/ On T. Cap. - 3 Yr. Avg. 9.3%
Return On Equity 19.9%
Return On Equity - 3 Yr. Avg. 20.4%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 64.3%
Gross Margin - 3 Yr. Avg. 63.9%
EBITDA Margin 34.5%
EBITDA Margin - 3 Yr. Avg. 37.7%
Operating Margin 24.2%
Oper. Margin - 3 Yr. Avg. 27.2%
Pre-Tax Margin 18.7%
Pre-Tax Margin - 3 Yr. Avg. 21.4%
Net Profit Margin 13.4%
Net Profit Margin - 3 Yr. Avg. 15.7%
Effective Tax Rate 27.4%
Eff/ Tax Rate - 3 Yr. Avg. 26.5%
Payout Ratio 0%

GC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GC stock intrinsic value calculation we used $566 million for the last fiscal year's total revenue generated by Great Canadian Gaming Corporation. The default revenue input number comes from 2016 income statement of Great Canadian Gaming Corporation. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our GC stock valuation model: a) initial revenue growth rate of 6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for GC is calculated based on our internal credit rating of Great Canadian Gaming Corporation, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Great Canadian Gaming Corporation.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of GC stock the variable cost ratio is equal to 72.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for GC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 7.4% for Great Canadian Gaming Corporation.

Corporate tax rate of 27% is the nominal tax rate for Great Canadian Gaming Corporation. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the GC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for GC are equal to 129.6%.

Life of production assets of 13.7 years is the average useful life of capital assets used in Great Canadian Gaming Corporation operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for GC is equal to -11%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $385 million for Great Canadian Gaming Corporation - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 60.965 million for Great Canadian Gaming Corporation is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Great Canadian Gaming Corporation at the current share price and the inputted number of shares is $2.8 billion.

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