Intrinsic value of Great Canadian Gaming Corporation - GC

Previous Close

$24.05

  Intrinsic Value

$31.35

stock screener

  Rating & Target

buy

+30%

  Value-price divergence*

+242%

Previous close

$24.05

 
Intrinsic value

$31.35

 
Up/down potential

+30%

 
Rating

buy

 
Value-price divergence*

+242%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 1.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   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, %
  22.25
  9.20
  8.78
  8.40
  8.06
  7.76
  7.48
  7.23
  7.01
  6.81
  6.63
  6.46
  6.32
  6.19
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.34
  5.30
  5.27
  5.24
  5.22
  5.20
Revenue, $m
  566
  618
  672
  729
  788
  849
  912
  978
  1,047
  1,118
  1,192
  1,269
  1,349
  1,433
  1,520
  1,610
  1,705
  1,803
  1,906
  2,013
  2,125
  2,242
  2,365
  2,493
  2,627
  2,767
  2,914
  3,067
  3,228
  3,397
  3,573
Variable operating expenses, $m
 
  449
  488
  528
  571
  615
  661
  709
  758
  809
  863
  916
  974
  1,035
  1,097
  1,163
  1,231
  1,302
  1,376
  1,454
  1,535
  1,619
  1,708
  1,800
  1,897
  1,998
  2,104
  2,215
  2,331
  2,453
  2,580
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
  429
  449
  488
  528
  571
  615
  661
  709
  758
  809
  863
  916
  974
  1,035
  1,097
  1,163
  1,231
  1,302
  1,376
  1,454
  1,535
  1,619
  1,708
  1,800
  1,897
  1,998
  2,104
  2,215
  2,331
  2,453
  2,580
Operating income, $m
  138
  170
  185
  200
  217
  234
  251
  270
  289
  308
  329
  353
  375
  398
  422
  447
  474
  501
  530
  559
  591
  623
  657
  693
  730
  769
  810
  852
  897
  944
  993
EBITDA, $m
  193
  230
  250
  271
  293
  316
  340
  364
  390
  416
  444
  473
  503
  534
  566
  600
  635
  672
  710
  750
  792
  835
  881
  929
  978
  1,031
  1,085
  1,143
  1,202
  1,265
  1,331
Interest expense (income), $m
  34
  35
  40
  45
  50
  56
  61
  67
  73
  79
  86
  93
  100
  107
  115
  123
  131
  140
  149
  158
  168
  178
  189
  200
  212
  224
  237
  250
  264
  279
  294
Earnings before tax, $m
  106
  134
  144
  155
  166
  178
  190
  203
  216
  229
  243
  260
  275
  291
  308
  325
  343
  362
  381
  402
  423
  445
  468
  493
  518
  545
  573
  602
  633
  665
  699
Tax expense, $m
  29
  36
  39
  42
  45
  48
  51
  55
  58
  62
  66
  70
  74
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126
  133
  140
  147
  155
  163
  171
  180
  189
Net income, $m
  76
  98
  105
  113
  121
  130
  139
  148
  157
  167
  178
  190
  201
  213
  225
  237
  250
  264
  278
  293
  309
  325
  342
  360
  378
  398
  418
  440
  462
  485
  510

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  1,084
  934
  1,016
  1,101
  1,190
  1,282
  1,378
  1,478
  1,581
  1,689
  1,801
  1,917
  2,038
  2,164
  2,296
  2,432
  2,575
  2,724
  2,879
  3,041
  3,211
  3,387
  3,572
  3,766
  3,968
  4,180
  4,401
  4,633
  4,876
  5,131
  5,398
Adjusted assets (=assets-cash), $m
  855
  934
  1,016
  1,101
  1,190
  1,282
  1,378
  1,478
  1,581
  1,689
  1,801
  1,917
  2,038
  2,164
  2,296
  2,432
  2,575
  2,724
  2,879
  3,041
  3,211
  3,387
  3,572
  3,766
  3,968
  4,180
  4,401
  4,633
  4,876
  5,131
  5,398
Revenue / Adjusted assets
  0.662
  0.662
  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
  0.662
Average production assets, $m
  734
  801
  871
  945
  1,021
  1,100
  1,182
  1,268
  1,356
  1,449
  1,545
  1,645
  1,749
  1,857
  1,969
  2,087
  2,209
  2,337
  2,470
  2,609
  2,754
  2,906
  3,065
  3,231
  3,404
  3,586
  3,776
  3,975
  4,184
  4,402
  4,631
Working capital, $m
  167
  -68
  -74
  -80
  -87
  -93
  -100
  -108
  -115
  -123
  -131
  -140
  -148
  -158
  -167
  -177
  -188
  -198
  -210
  -221
  -234
  -247
  -260
  -274
  -289
  -304
  -321
  -337
  -355
  -374
  -393
Total debt, $m
  478
  543
  610
  680
  752
  828
  906
  988
  1,072
  1,160
  1,252
  1,347
  1,446
  1,549
  1,657
  1,769
  1,885
  2,007
  2,134
  2,267
  2,405
  2,550
  2,701
  2,859
  3,025
  3,198
  3,379
  3,569
  3,768
  3,976
  4,194
Total liabilities, $m
  698
  764
  831
  901
  973
  1,049
  1,127
  1,209
  1,293
  1,381
  1,473
  1,568
  1,667
  1,770
  1,878
  1,990
  2,106
  2,228
  2,355
  2,488
  2,626
  2,771
  2,922
  3,080
  3,246
  3,419
  3,600
  3,790
  3,989
  4,197
  4,415
Total equity, $m
  385
  170
  185
  200
  217
  233
  251
  269
  288
  307
  328
  349
  371
  394
  418
  443
  469
  496
  524
  553
  584
  617
  650
  685
  722
  761
  801
  843
  887
  934
  982
Total liabilities and equity, $m
  1,083
  934
  1,016
  1,101
  1,190
  1,282
  1,378
  1,478
  1,581
  1,688
  1,801
  1,917
  2,038
  2,164
  2,296
  2,433
  2,575
  2,724
  2,879
  3,041
  3,210
  3,388
  3,572
  3,765
  3,968
  4,180
  4,401
  4,633
  4,876
  5,131
  5,397
Debt-to-equity ratio
  1.242
  3.190
  3.300
  3.390
  3.470
  3.550
  3.610
  3.670
  3.730
  3.780
  3.820
  3.860
  3.900
  3.930
  3.970
  4.000
  4.020
  4.050
  4.070
  4.100
  4.120
  4.140
  4.150
  4.170
  4.190
  4.200
  4.220
  4.230
  4.250
  4.260
  4.270
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
  0.182

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  76
  98
  105
  113
  121
  130
  139
  148
  157
  167
  178
  190
  201
  213
  225
  237
  250
  264
  278
  293
  309
  325
  342
  360
  378
  398
  418
  440
  462
  485
  510
Depreciation, amort., depletion, $m
  55
  61
  66
  71
  77
  82
  88
  95
  101
  108
  115
  120
  128
  136
  144
  152
  161
  171
  180
  190
  201
  212
  224
  236
  248
  262
  276
  290
  305
  321
  338
Funds from operations, $m
  154
  159
  171
  184
  198
  212
  227
  243
  259
  275
  292
  310
  329
  348
  368
  389
  412
  435
  459
  484
  510
  537
  566
  596
  627
  660
  694
  730
  767
  807
  848
Change in working capital, $m
  -24
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
Cash from operations, $m
  178
  164
  177
  191
  205
  219
  234
  250
  266
  283
  301
  318
  337
  357
  378
  399
  422
  445
  470
  495
  522
  550
  579
  610
  642
  675
  710
  747
  785
  825
  868
Maintenance CAPEX, $m
  0
  -54
  -58
  -64
  -69
  -75
  -80
  -86
  -93
  -99
  -106
  -113
  -120
  -128
  -136
  -144
  -152
  -161
  -171
  -180
  -190
  -201
  -212
  -224
  -236
  -248
  -262
  -276
  -290
  -305
  -321
New CAPEX, $m
  -39
  -68
  -70
  -73
  -76
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -104
  -108
  -113
  -117
  -122
  -128
  -133
  -139
  -145
  -152
  -159
  -166
  -174
  -182
  -190
  -199
  -208
  -218
  -229
Cash from investing activities, $m
  -86
  -122
  -128
  -137
  -145
  -154
  -162
  -171
  -182
  -191
  -202
  -213
  -224
  -236
  -249
  -261
  -274
  -289
  -304
  -319
  -335
  -353
  -371
  -390
  -410
  -430
  -452
  -475
  -498
  -523
  -550
Free cash flow, $m
  92
  43
  48
  54
  60
  65
  72
  78
  85
  92
  99
  106
  113
  121
  130
  138
  147
  156
  166
  176
  186
  197
  208
  220
  232
  245
  258
  272
  286
  302
  317
Issuance/(repayment) of debt, $m
  34
  65
  67
  70
  73
  75
  78
  82
  85
  88
  92
  95
  99
  103
  107
  112
  117
  122
  127
  133
  138
  145
  151
  158
  165
  173
  181
  190
  199
  208
  218
Issuance/(repurchase) of shares, $m
  -73
  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  
  -71
  65
  67
  70
  73
  75
  78
  82
  85
  88
  92
  95
  99
  103
  107
  112
  117
  122
  127
  133
  138
  145
  151
  158
  165
  173
  181
  190
  199
  208
  218
Total cash flow (excl. dividends), $m
  21
  108
  115
  124
  132
  141
  150
  160
  169
  180
  190
  201
  212
  225
  237
  250
  264
  278
  293
  309
  325
  342
  360
  378
  398
  418
  439
  462
  485
  510
  536
Retained Cash Flow (-), $m
  -6
  -14
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -39
  -40
  -42
  -44
  -46
  -49
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
 
  323
  101
  108
  116
  124
  133
  141
  151
  160
  170
  180
  190
  202
  213
  225
  238
  251
  265
  279
  294
  310
  326
  343
  361
  380
  399
  420
  441
  463
  487
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
 
  310
  92
  94
  95
  96
  96
  96
  94
  92
  89
  85
  81
  77
  72
  66
  60
  55
  49
  43
  37
  32
  27
  22
  18
  15
  12
  9
  7
  5
  4
Current shareholders' claim on cash, %
  100
  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 the in the United States and Canada. As of March 9, 2016, it operated 19 gaming properties, which consist of 12 casinos comprising 2 with a Four Diamond resort hotel; 4 horse racetrack casinos; and 3 community gaming centers in British Columbia, Ontario, Nova Scotia, New Brunswick, and Washington State. The company was founded in 1982 and is based in Coquitlam, Canada.

FINANCIAL RATIOS  of  Great Canadian Gaming Corporation (GC)

Valuation Ratios
P/E Ratio 19.2
Price to Sales 2.6
Price to Book 3.8
Price to Tangible Book
Price to Cash Flow 8.2
Price to Free Cash Flow 10.5
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 9.2% 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 61.826 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 $1.5 billion.

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Stock chart of GC Financial statements of GC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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