Intrinsic value of Great Canadian Gaming Corporation - GC

Previous Close

$33.52

  Intrinsic Value

$41.53

stock screener

  Rating & Target

buy

+24%

  Value-price divergence*

0%

Previous close

$33.52

 
Intrinsic value

$41.53

 
Up/down potential

+24%

 
Rating

buy

 
Value-price divergence*

0%

*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 2.0

 

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
  15.00
  14.00
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
Revenue, $m
  566
  651
  742
  839
  942
  1,051
  1,166
  1,286
  1,412
  1,543
  1,680
  1,823
  1,971
  2,126
  2,286
  2,453
  2,626
  2,806
  2,993
  3,187
  3,390
  3,600
  3,820
  4,048
  4,287
  4,535
  4,794
  5,065
  5,348
  5,643
  5,952
Variable operating expenses, $m
 
  472
  538
  608
  683
  761
  844
  931
  1,022
  1,117
  1,216
  1,316
  1,424
  1,535
  1,651
  1,771
  1,896
  2,026
  2,161
  2,302
  2,448
  2,600
  2,758
  2,923
  3,095
  3,275
  3,462
  3,658
  3,862
  4,075
  4,298
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
  472
  538
  608
  683
  761
  844
  931
  1,022
  1,117
  1,216
  1,316
  1,424
  1,535
  1,651
  1,771
  1,896
  2,026
  2,161
  2,302
  2,448
  2,600
  2,758
  2,923
  3,095
  3,275
  3,462
  3,658
  3,862
  4,075
  4,298
Operating income, $m
  138
  179
  204
  231
  260
  290
  322
  355
  390
  427
  465
  507
  548
  591
  635
  682
  730
  780
  832
  886
  942
  1,000
  1,061
  1,125
  1,191
  1,260
  1,332
  1,408
  1,486
  1,568
  1,654
EBITDA, $m
  193
  242
  276
  313
  351
  392
  434
  479
  526
  575
  626
  679
  734
  792
  851
  914
  978
  1,045
  1,115
  1,187
  1,263
  1,341
  1,423
  1,508
  1,597
  1,689
  1,786
  1,887
  1,992
  2,102
  2,217
Interest expense (income), $m
  34
  35
  43
  51
  60
  70
  80
  90
  101
  113
  125
  137
  150
  164
  178
  193
  208
  224
  240
  257
  275
  294
  313
  333
  354
  376
  398
  422
  447
  473
  500
Earnings before tax, $m
  106
  143
  161
  180
  199
  220
  242
  265
  289
  314
  340
  369
  397
  427
  457
  489
  522
  556
  591
  628
  667
  707
  749
  792
  837
  885
  934
  986
  1,039
  1,096
  1,154
Tax expense, $m
  29
  39
  43
  48
  54
  59
  65
  72
  78
  85
  92
  100
  107
  115
  123
  132
  141
  150
  160
  170
  180
  191
  202
  214
  226
  239
  252
  266
  281
  296
  312
Net income, $m
  76
  105
  117
  131
  145
  161
  177
  193
  211
  229
  248
  270
  290
  312
  334
  357
  381
  406
  432
  459
  487
  516
  546
  578
  611
  646
  682
  719
  759
  800
  843

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
  983
  1,121
  1,268
  1,424
  1,588
  1,761
  1,943
  2,133
  2,331
  2,538
  2,754
  2,978
  3,211
  3,453
  3,705
  3,966
  4,238
  4,521
  4,815
  5,120
  5,439
  5,770
  6,115
  6,475
  6,851
  7,242
  7,651
  8,078
  8,525
  8,991
Adjusted assets (=assets-cash), $m
  855
  983
  1,121
  1,268
  1,424
  1,588
  1,761
  1,943
  2,133
  2,331
  2,538
  2,754
  2,978
  3,211
  3,453
  3,705
  3,966
  4,238
  4,521
  4,815
  5,120
  5,439
  5,770
  6,115
  6,475
  6,851
  7,242
  7,651
  8,078
  8,525
  8,991
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
  844
  962
  1,088
  1,221
  1,363
  1,511
  1,667
  1,830
  2,000
  2,178
  2,363
  2,555
  2,755
  2,963
  3,178
  3,403
  3,636
  3,879
  4,131
  4,393
  4,666
  4,950
  5,247
  5,555
  5,878
  6,214
  6,564
  6,931
  7,314
  7,714
Working capital, $m
  167
  -72
  -82
  -92
  -104
  -116
  -128
  -141
  -155
  -170
  -185
  -201
  -217
  -234
  -251
  -270
  -289
  -309
  -329
  -351
  -373
  -396
  -420
  -445
  -472
  -499
  -527
  -557
  -588
  -621
  -655
Total debt, $m
  478
  583
  696
  816
  943
  1,078
  1,220
  1,368
  1,524
  1,686
  1,855
  2,032
  2,215
  2,406
  2,604
  2,809
  3,023
  3,246
  3,477
  3,717
  3,967
  4,228
  4,499
  4,781
  5,076
  5,383
  5,703
  6,038
  6,387
  6,752
  7,134
Total liabilities, $m
  698
  804
  917
  1,037
  1,164
  1,299
  1,441
  1,589
  1,745
  1,907
  2,076
  2,253
  2,436
  2,627
  2,825
  3,030
  3,244
  3,467
  3,698
  3,938
  4,188
  4,449
  4,720
  5,002
  5,297
  5,604
  5,924
  6,259
  6,608
  6,973
  7,355
Total equity, $m
  385
  179
  204
  231
  259
  289
  321
  354
  388
  424
  462
  501
  542
  584
  628
  674
  722
  771
  823
  876
  932
  990
  1,050
  1,113
  1,179
  1,247
  1,318
  1,393
  1,470
  1,551
  1,636
Total liabilities and equity, $m
  1,083
  983
  1,121
  1,268
  1,423
  1,588
  1,762
  1,943
  2,133
  2,331
  2,538
  2,754
  2,978
  3,211
  3,453
  3,704
  3,966
  4,238
  4,521
  4,814
  5,120
  5,439
  5,770
  6,115
  6,476
  6,851
  7,242
  7,652
  8,078
  8,524
  8,991
Debt-to-equity ratio
  1.242
  3.260
  3.410
  3.540
  3.640
  3.730
  3.810
  3.870
  3.930
  3.970
  4.020
  4.050
  4.090
  4.120
  4.140
  4.170
  4.190
  4.210
  4.230
  4.240
  4.260
  4.270
  4.280
  4.300
  4.310
  4.320
  4.330
  4.340
  4.340
  4.350
  4.360
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
  105
  117
  131
  145
  161
  177
  193
  211
  229
  248
  270
  290
  312
  334
  357
  381
  406
  432
  459
  487
  516
  546
  578
  611
  646
  682
  719
  759
  800
  843
Depreciation, amort., depletion, $m
  55
  64
  72
  82
  91
  102
  112
  124
  136
  148
  161
  172
  186
  201
  216
  232
  248
  265
  283
  302
  321
  341
  361
  383
  406
  429
  454
  479
  506
  534
  563
Funds from operations, $m
  154
  168
  190
  213
  237
  262
  289
  317
  347
  377
  409
  442
  477
  513
  550
  589
  629
  671
  715
  760
  807
  857
  908
  961
  1,017
  1,075
  1,135
  1,199
  1,265
  1,334
  1,406
Change in working capital, $m
  -24
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
Cash from operations, $m
  178
  178
  200
  223
  248
  274
  302
  331
  361
  392
  424
  458
  493
  530
  568
  607
  648
  691
  735
  782
  830
  880
  932
  986
  1,043
  1,102
  1,164
  1,228
  1,296
  1,366
  1,440
Maintenance CAPEX, $m
  0
  -54
  -62
  -70
  -79
  -89
  -99
  -110
  -122
  -134
  -146
  -159
  -172
  -186
  -201
  -216
  -232
  -248
  -265
  -283
  -302
  -321
  -341
  -361
  -383
  -406
  -429
  -454
  -479
  -506
  -534
New CAPEX, $m
  -39
  -110
  -118
  -126
  -134
  -141
  -149
  -156
  -163
  -170
  -178
  -185
  -192
  -200
  -208
  -216
  -224
  -233
  -242
  -252
  -262
  -273
  -284
  -296
  -309
  -322
  -336
  -351
  -366
  -383
  -400
Cash from investing activities, $m
  -86
  -164
  -180
  -196
  -213
  -230
  -248
  -266
  -285
  -304
  -324
  -344
  -364
  -386
  -409
  -432
  -456
  -481
  -507
  -535
  -564
  -594
  -625
  -657
  -692
  -728
  -765
  -805
  -845
  -889
  -934
Free cash flow, $m
  92
  14
  20
  27
  35
  44
  54
  64
  76
  88
  101
  114
  128
  143
  159
  175
  192
  209
  228
  246
  266
  286
  307
  329
  351
  375
  399
  424
  450
  477
  506
Issuance/(repayment) of debt, $m
  34
  105
  113
  120
  127
  135
  142
  149
  155
  162
  169
  176
  183
  191
  198
  206
  214
  222
  231
  240
  250
  260
  271
  282
  294
  307
  320
  334
  349
  365
  382
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
  105
  113
  120
  127
  135
  142
  149
  155
  162
  169
  176
  183
  191
  198
  206
  214
  222
  231
  240
  250
  260
  271
  282
  294
  307
  320
  334
  349
  365
  382
Total cash flow (excl. dividends), $m
  21
  119
  133
  147
  163
  179
  195
  213
  231
  250
  270
  290
  312
  334
  357
  381
  406
  432
  459
  487
  516
  546
  578
  611
  646
  682
  719
  758
  799
  842
  887
Retained Cash Flow (-), $m
  -6
  -23
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -49
  -51
  -53
  -56
  -58
  -60
  -63
  -66
  -68
  -71
  -74
  -78
  -81
  -85
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
 
  325
  108
  121
  134
  149
  164
  180
  197
  214
  232
  251
  271
  291
  313
  335
  358
  382
  407
  433
  460
  489
  518
  548
  580
  613
  648
  684
  722
  761
  802
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
 
  312
  99
  105
  111
  115
  119
  122
  123
  123
  122
  119
  116
  111
  105
  98
  91
  83
  75
  67
  58
  51
  43
  36
  30
  24
  19
  15
  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 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 26.8
Price to Sales 3.6
Price to Book 5.3
Price to Tangible Book
Price to Cash Flow 11.4
Price to Free Cash Flow 14.7
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 15% 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 60.859 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 $2.0 billion.

RELATED COMPANIES Price Int.Val. Rating
TSGI The Stars Grou 24.62 41.29  str.buy
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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