Intrinsic value of Great Canadian Gaming Corporation - GC

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$24.10

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$24.10

 
Intrinsic value

$40.37

 
Up/down potential

+68%

 
Rating

str. buy

 
Value-price divergence* premium content

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*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
  14.30
  13.37
  12.53
  11.78
  11.10
  10.49
  9.94
  9.45
  9.00
  8.60
  8.24
  7.92
  7.63
  7.36
  7.13
  6.91
  6.72
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
Revenue, $m
  566
  647
  733
  825
  923
  1,025
  1,133
  1,245
  1,363
  1,485
  1,613
  1,746
  1,885
  2,028
  2,178
  2,333
  2,494
  2,662
  2,836
  3,018
  3,206
  3,403
  3,608
  3,821
  4,044
  4,276
  4,518
  4,771
  5,036
  5,312
  5,601
Variable operating expenses, $m
 
  469
  532
  598
  668
  742
  820
  901
  986
  1,075
  1,167
  1,261
  1,361
  1,465
  1,572
  1,685
  1,801
  1,922
  2,048
  2,179
  2,315
  2,457
  2,605
  2,759
  2,920
  3,088
  3,263
  3,445
  3,636
  3,836
  4,044
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
  469
  532
  598
  668
  742
  820
  901
  986
  1,075
  1,167
  1,261
  1,361
  1,465
  1,572
  1,685
  1,801
  1,922
  2,048
  2,179
  2,315
  2,457
  2,605
  2,759
  2,920
  3,088
  3,263
  3,445
  3,636
  3,836
  4,044
Operating income, $m
  138
  178
  202
  227
  254
  283
  313
  344
  377
  411
  446
  485
  524
  564
  605
  648
  693
  740
  788
  839
  891
  946
  1,003
  1,062
  1,124
  1,188
  1,256
  1,326
  1,399
  1,476
  1,556
EBITDA, $m
  193
  241
  273
  307
  344
  382
  422
  464
  508
  553
  601
  650
  702
  755
  811
  869
  929
  991
  1,056
  1,124
  1,194
  1,268
  1,344
  1,423
  1,506
  1,593
  1,683
  1,777
  1,876
  1,979
  2,086
Interest expense (income), $m
  34
  35
  43
  51
  59
  68
  77
  87
  97
  108
  119
  131
  143
  156
  169
  183
  197
  212
  227
  243
  260
  277
  295
  314
  333
  353
  375
  397
  420
  444
  469
Earnings before tax, $m
  106
  142
  159
  176
  195
  215
  235
  257
  279
  302
  327
  354
  380
  408
  436
  465
  496
  528
  561
  596
  631
  669
  708
  748
  791
  835
  881
  929
  979
  1,032
  1,087
Tax expense, $m
  29
  38
  43
  48
  53
  58
  63
  69
  75
  82
  88
  96
  103
  110
  118
  126
  134
  143
  151
  161
  170
  181
  191
  202
  213
  225
  238
  251
  264
  279
  294
Net income, $m
  76
  104
  116
  129
  142
  157
  172
  187
  204
  221
  238
  258
  278
  298
  318
  340
  362
  385
  410
  435
  461
  488
  517
  546
  577
  609
  643
  678
  715
  753
  794

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
  977
  1,108
  1,247
  1,394
  1,548
  1,711
  1,881
  2,059
  2,244
  2,437
  2,638
  2,847
  3,064
  3,289
  3,524
  3,768
  4,021
  4,284
  4,558
  4,843
  5,140
  5,450
  5,772
  6,108
  6,459
  6,825
  7,207
  7,607
  8,024
  8,460
Adjusted assets (=assets-cash), $m
  855
  977
  1,108
  1,247
  1,394
  1,548
  1,711
  1,881
  2,059
  2,244
  2,437
  2,638
  2,847
  3,064
  3,289
  3,524
  3,768
  4,021
  4,284
  4,558
  4,843
  5,140
  5,450
  5,772
  6,108
  6,459
  6,825
  7,207
  7,607
  8,024
  8,460
Revenue / Adjusted assets
  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
  0.662
  0.662
  0.662
Average production assets, $m
  734
  838
  951
  1,070
  1,196
  1,328
  1,468
  1,614
  1,766
  1,925
  2,091
  2,263
  2,442
  2,629
  2,822
  3,023
  3,232
  3,450
  3,676
  3,911
  4,155
  4,410
  4,676
  4,952
  5,241
  5,542
  5,856
  6,184
  6,526
  6,884
  7,259
Working capital, $m
  167
  -71
  -81
  -91
  -101
  -113
  -125
  -137
  -150
  -163
  -177
  -192
  -207
  -223
  -240
  -257
  -274
  -293
  -312
  -332
  -353
  -374
  -397
  -420
  -445
  -470
  -497
  -525
  -554
  -584
  -616
Total debt, $m
  478
  578
  685
  799
  919
  1,046
  1,178
  1,318
  1,463
  1,615
  1,772
  1,937
  2,108
  2,285
  2,470
  2,662
  2,861
  3,068
  3,284
  3,508
  3,741
  3,984
  4,237
  4,501
  4,776
  5,063
  5,362
  5,675
  6,001
  6,343
  6,700
Total liabilities, $m
  698
  799
  906
  1,020
  1,140
  1,267
  1,399
  1,539
  1,684
  1,836
  1,993
  2,158
  2,329
  2,506
  2,691
  2,883
  3,082
  3,289
  3,505
  3,729
  3,962
  4,205
  4,458
  4,722
  4,997
  5,284
  5,583
  5,896
  6,222
  6,564
  6,921
Total equity, $m
  385
  178
  202
  227
  254
  282
  311
  342
  375
  408
  444
  480
  518
  558
  599
  641
  686
  732
  780
  830
  882
  936
  992
  1,051
  1,112
  1,176
  1,242
  1,312
  1,384
  1,460
  1,540
Total liabilities and equity, $m
  1,083
  977
  1,108
  1,247
  1,394
  1,549
  1,710
  1,881
  2,059
  2,244
  2,437
  2,638
  2,847
  3,064
  3,290
  3,524
  3,768
  4,021
  4,285
  4,559
  4,844
  5,141
  5,450
  5,773
  6,109
  6,460
  6,825
  7,208
  7,606
  8,024
  8,461
Debt-to-equity ratio
  1.242
  3.250
  3.400
  3.520
  3.620
  3.710
  3.780
  3.850
  3.900
  3.950
  4.000
  4.030
  4.070
  4.100
  4.130
  4.150
  4.170
  4.190
  4.210
  4.230
  4.240
  4.260
  4.270
  4.280
  4.300
  4.310
  4.320
  4.330
  4.330
  4.340
  4.350
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
  104
  116
  129
  142
  157
  172
  187
  204
  221
  238
  258
  278
  298
  318
  340
  362
  385
  410
  435
  461
  488
  517
  546
  577
  609
  643
  678
  715
  753
  794
Depreciation, amort., depletion, $m
  55
  63
  72
  80
  89
  99
  109
  120
  131
  143
  155
  165
  178
  192
  206
  221
  236
  252
  268
  285
  303
  322
  341
  361
  383
  404
  427
  451
  476
  503
  530
Funds from operations, $m
  154
  167
  188
  209
  232
  256
  281
  307
  335
  363
  393
  424
  456
  489
  524
  560
  598
  637
  678
  720
  764
  810
  858
  908
  960
  1,014
  1,071
  1,130
  1,191
  1,256
  1,323
Change in working capital, $m
  -24
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -23
  -24
  -26
  -27
  -28
  -29
  -30
  -32
Cash from operations, $m
  178
  191
  197
  219
  243
  267
  293
  320
  348
  377
  407
  438
  471
  505
  541
  578
  616
  656
  697
  740
  785
  832
  880
  931
  984
  1,039
  1,097
  1,157
  1,220
  1,286
  1,355
Maintenance CAPEX, $m
  0
  -54
  -61
  -69
  -78
  -87
  -97
  -107
  -118
  -129
  -141
  -153
  -165
  -178
  -192
  -206
  -221
  -236
  -252
  -268
  -285
  -303
  -322
  -341
  -361
  -383
  -404
  -427
  -451
  -476
  -503
New CAPEX, $m
  -39
  -105
  -112
  -119
  -126
  -133
  -139
  -146
  -152
  -159
  -166
  -172
  -179
  -186
  -194
  -201
  -209
  -217
  -226
  -235
  -245
  -255
  -265
  -277
  -288
  -301
  -314
  -328
  -343
  -358
  -374
Cash from investing activities, $m
  -86
  -159
  -173
  -188
  -204
  -220
  -236
  -253
  -270
  -288
  -307
  -325
  -344
  -364
  -386
  -407
  -430
  -453
  -478
  -503
  -530
  -558
  -587
  -618
  -649
  -684
  -718
  -755
  -794
  -834
  -877
Free cash flow, $m
  92
  32
  24
  31
  38
  47
  56
  67
  77
  89
  101
  113
  127
  141
  155
  170
  186
  202
  219
  237
  255
  274
  293
  313
  334
  356
  379
  402
  426
  452
  478
Issuance/(repayment) of debt, $m
  34
  100
  107
  114
  120
  127
  133
  139
  145
  152
  158
  164
  171
  178
  185
  192
  199
  207
  215
  224
  233
  243
  253
  264
  275
  287
  299
  313
  327
  341
  357
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
  100
  107
  114
  120
  127
  133
  139
  145
  152
  158
  164
  171
  178
  185
  192
  199
  207
  215
  224
  233
  243
  253
  264
  275
  287
  299
  313
  327
  341
  357
Total cash flow (excl. dividends), $m
  21
  133
  131
  144
  159
  174
  189
  206
  223
  241
  259
  278
  298
  318
  340
  362
  385
  410
  435
  461
  488
  517
  546
  577
  609
  643
  678
  715
  753
  793
  835
Retained Cash Flow (-), $m
  -6
  -22
  -24
  -25
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -76
  -79
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
 
  340
  107
  119
  132
  145
  160
  175
  190
  207
  224
  241
  260
  279
  299
  320
  341
  364
  387
  411
  436
  463
  490
  518
  548
  579
  611
  645
  680
  717
  756
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
 
  326
  98
  104
  109
  113
  116
  118
  119
  119
  117
  115
  111
  106
  100
  94
  87
  79
  71
  63
  55
  48
  41
  34
  28
  23
  18
  14
  11
  8
  6
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 19.3
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 14.3% 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 60.916 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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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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