Century Casinos Inc. ( CNTY) Partners With Circa Sports Throwing Down The Gaunlet In US Sports Gaming Market

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Century Casinos Inc. ( CNTY) Partners With Circa Sports Throwing Down The Gaunlet In US Sports Gaming Market

 

Summary

Partnership with Circa improves long term growth profile.

All casinos now reopened.

Stock is attractively priced relative to industry group comps.

century casino june 2020

Data by YCharts

 

Looking to rebound from a $45.9 million first-quarter loss delivered by the coronavirus pandemic, Century Casinos (NASDAQ:CNTY) reopened five gaming properties in Canada as of June 13, following casino openings in Missouri and West Virginia, while plans to reopen two casinos in Colorado came to fruiation June 15.

Headquartered in Colorado Springs, Colo., Century Casinos (CNTY) has pleased most shareholders, returning 32 percent on investment over the last three years, though earnings per share have disappointed analysts and shareholders would like to see CEO salary more in line with the median.

In April, Century partnered with Las Vegas-based Circa Sports to bring internet sports gambling to Colorado. The 15-year agreement with Circa creates a strategic opportunity for added revenue as online sports betting is projected to surge to $20 billion by 2024. Terms of the deal include a market access fee, share of net gaming revenue and minimum revenue guarantee payable to Century each year.

Circa Sports ( privately held) Chief Executive Officer Derek Stevens said his team “simply hit it off” with Century’s management team, and he felt the companies were a good fit for each other.

Stevens, who owns Golden Gate and The D casino-hotels in Las Vegas and is developing the Circa hotel, sees Colorado as an ideal place to expand his sports betting footprint outside of Nevada. Colorado voters in November approved legislation for sports wagering to start May 1.

“The market question is still to be determined as there are a wide range of projections for Colorado, but we think Circa Sports will assume a solid position within the Colorado market,” Stevens said.

Century and Circa submitted applications with the state of Colorado to obtain necessary licenses before May 1. The Circa Sports TM Mobile sports betting app, which launched in May, will operate in association with one of Colorado’s master licenses for sports wagering held by Century Casinos subsidiaries.

Circa is certainly interested in partnering with other gaming properties throughout the United States, depending upon a favorable regulatory environment, Stevens said.

Competitive strategy

With its tagline, “Where the Pros Play,” Circa intends to find a unique niche in Colorado, even as it competes with betting platforms such as DraftKings (DKNG) and FanDuel, which currently operate in several states that offer legalized online sports wagering.

“We plan on taking larger limits than most, similar to what we do in Nevada,” Stevens said. “We will also offer some unique products such as cross-sports parlays, something that has been extremely popular in Las Vegas.”

There is growing speculation that more states will legalize online sports gambling to replenish coffers that were drained by the economic shutdown brought on by the virus. Legislators will be looking at every possible revenue source following the pandemic, Stevens believes.

“Sports wagering is still in its infancy in the United States,” he said. “The percentage of states that will allow sports wagering will continue to increase in the next 24 months.”

Reopening casinos

Century Casinos Co-CEO Peter Hoetzinger said the company was hoping to reopen its casinos in Cripple Creek and Central City, Colo., in mid-June, but that has yet to happen. Century also owns casinos in Missouri, West Virginia, Canada, Poland and England. It operates pari-mutuel off-track horse betting networks in Alberta, Canada.

The company in May opened its eight casinos in Poland, and resumed operations in June at casinos in Edmonton, St. Albert and Calgary, Alberta, as well as Century Mile Racetrack and Casino and Century Downs Racetrack.

Prior to reopening, Century Casinos implemented comprehensive sanitizing and social distancing protocols based on Alberta Health Services guidelines and newly established industry standards.

In its May 20 first-quarter earnings report, Century reported net operating revenue and EBITDA were negatively impacted by the company’s acquisition of Mountaineer Casino and Racetrack, Century Casino Cape Girardeau and Century Casino Caruthersville in Missouri.

The COVID-19 pandemic crushed first-quarter operations, which included a $33 million impairment of goodwill and casino licenses.

“During these unprecedented times, our primary focus is the health, safety and well-being of our team members, guests and communities,” Century Casinos Co-CEOs Erwin Haitzmann and Peter Hoetzinger commented in the earnings report.

“Through the end of February, we were encouraged by the strength of our operations and the significant growth in net operating revenue and adjusted EBITDA driven in part by our recent acquisition of properties in Missouri and West Virginia. We look forward to reopening our properties and we plan to meet or exceed all safety requirements set forth by health officials.”

Improved growth outlook

Century’s strategic partnership with Circa may be leveraged to include all present and future US properties , subject to state approvals, combined the recent strategies acquisition of properties from El Resorts Inc. (ERI) creates a attractive investment opportunity in CNTY.

Century Casino (CNTY) trades at lower price to book value .88 vs 2.56 and lower price to sales ratio at .66 to1.47. than the casino/resort industry group. Current Wall Street mean estimates call for 25% long term eps growth and a twelve-month price target of $7.75.

Disclosure: I am/we are long CNTY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

 

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Covid outbreak 2nd wave claims by media not supported by balanced data sets

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Covid outbreak 2nd wave claims by media not supported by balanced data sets

 

Media hyping 2nd wave showing increased cases , particularly in states that were first to reopen, TX, FLA , AZ...

Data does not support this , increased cases  are largely the result of increased testing, positivity rates are steady at 5-7% .

Texas is a good example of data not supporting the fear mongering . Tests have increased nearly 4x in the last 1-2 months, increasing 20% on a 7 day avg. . Hospital  rate data shows plenty of capacity at 30%+ , and a 2-1x ventilator to patient ratio:   5844/2793.

Similar data found  in Arizona:  testing +2x in last 2 months , positives steady at 7%.

In all these states the daily mortality rate is trending 25-35% downward since peaking approximately 2 months ago. Alabama has been cited as a hotspot, it had only 1 death yesterday.

Data on the US is not fairly discussed, US is the 3rd most populous nation , China at #1 has unreliable data

On a  apples to apples basis, US has a lower death rate than many European nations in deaths per 1m population .

The US death rate is 35% lower , adjusted for nursing home deaths in NYC & NJ where infected Covid -19 elderly patients  were sent back to nursing homes in error , accelerating  deaths.

The US has the highest obesity rate at  over 30% , this is  among the highest in the world. Obesity is the highest  correlated morbidity factor , and the US, adjusted for high obesity and the nursing home error ,has one of the lowest death rates in the  western world per 1million , rivaling Germany & Austria.

Recent "outbreaks" in Germany are also not supported by data. China data is unreliable..

Thus, it appears any significant market correction induced by the current Covid-19 outbreak claims should be seen opportunistically.

 

references: 

https://txdshs.maps.arcgis.com/apps/opsdashboard/index.html#/0d8bdf9be927459d9cb11b9eaef6101f

https://azdhs.gov/preparedness/epidemiology-disease-control/infectious-disease-epidemiology/covid-19/dashboards/index.php?enowpopup

 https://ourworldindata.org/grapher/tests-per-confirmed-case-daily-smoothed?tab=chart&country=~USA

 

Thank You

Robert Maltbie, CFA
Singular Research, President
818-222-6234(office)
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Tags: Director's LetterLatest Updates

 

The Big Kick-off: Sports Gaming Ready To Rumble

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The Big Kick-off: Sports Gaming Ready To Rumble

 

william hill reported strong online

(William Hill reported strong online wagering on Germany’s Bundesliga professional soccer league)

 

Gauging by lines of customers waiting outside casinos hours before reopening in Idaho, Arizona, California and Louisiana, recovery in the gaming industry may be stronger than economists are forecasting.


Sports bettors are emerging from their COVID-19 doldrums, grabbing action on the first weekend of Germany’s Bundesliga professional soccer league, which was second in online wagering only to the UFC 249 card in Florida, William Hill reported.


DraftKings (DKNG), William Hill (WIMHY) and Score Media and Gaming (SCR.V) experienced a slight uptick in share prices in May as gamblers turned to online sports betting platforms during the coronavirus quarantine period.


William Hill (WIMHY) offered drive-thru locations at five Nevada casinos for customers to create a mobile sports betting account in advance of the May 9 UFC event. One bettor put down $105,000 on favorite Tony Ferguson, who lost to Justin Gaethie in the main event.


“Ahead of the largest sporting event of the month, we wanted a safe way to meet the current demand from our customers,” CEO Joe Asher said. “It sure is nice to have an American sport to bet on.”


The bigger question: How will bettors react to pro and college sports without fans in the stands? Most analysts agree that sports wagering will lag previous highs until the leagues allow the return of spectators.


Resuming play

MLB: Wants to launch a shortened 82-game season in July with health and safety protocols in place, though negotiations with the players union over salary reductions linger as a complicated point of contention.


NFL: Taking similar steps to start practicing in July, including coronavirus testing for players and staff, social distancing measures in locker rooms, training rooms and weight rooms, and sanitizing all equipment.


NBA: Chose Orlando, Fla., to resume the season in July.

NHL: Approved a 24-team, conference-based playoff for the Stanley Cup.

NCAA: Lifted its moratorium on athletic activities as of June, though fall sports will not return without students on campus, NCAA President Mark Emmert said.


Going mobile

The online betting trend is expected to continue as states look to bolster depleted budgets, and gaming tax revenue could be a lucrative source.

Prior to the pandemic pause, New Jersey surpassed Nevada for the first time in sports betting revenue with $320 million in March, compared with $305 million for Nevada, less than two years after the U.S. Supreme Court’s repeal of the Professional and Amateur Sports Protection Act. Pennsylvania was third with $108 million.

New Jersey collected $39.4 million in sports betting taxes in March, compared with $20.6 million for Nevada, which has the lowest gaming tax rate in the nation at 6.75 percent.

Historically, sports have shown healing power in the aftermath of a crisis, and momentum gained by the repeal of PASPA will only feed America’s fever for betting on the games.

“As states look to fill budget gaps, sports betting and online gaming will likely creep into the conversation,” Steven Gallaway, managing partner of Global Market Advisors, said in a May report. “For those states that already have legalized sports, an increase in the tax rate should not be seen as a solution to fill a budget gap. In a high volume, low margin business, this would only hinder an already pressured market.”


Reopening casinos

Gaming stocks have tumbled this year. Some are climbing back as the economy reopens in phases and coronavirus data trends decline.

Wynn Resorts (WYNN), MGM Resorts (MGM), Las Vegas Sands (LVS), Caesars Entertainment (CZR) , Boyd Gaming (BYD) and Red Rock Resort (RRR) laid out plans to reopen casinos in early June, but it’s up to the Nevada Gaming Control Board and Gov. Steve Sisolak to give them the green light. The board meets May 26, and casinos could open June 4 under the next phase of relaxed restrictions.

Caesars (CZR) announced on May 21 that it will resume gaming and hospitality operations at its flagship Caesars Palace and Flamingo hotel in Las Vegas on the day specified by state officials. Its stock rose 11 cents to $11.12 on May 22.

“Reopening Las Vegas in a phased approach will be a significant milestone for Caesars Entertainment as the country continues to emerge from this necessary closure period,” said Tony Rodio, CEO of Caesars Entertainment. “We are hopeful that the country’s continued progress in addressing COVID-19 and business conditions will allow us to reopen more of our properties and bring back more of our colleagues as it is appropriate to do so.”

It will not be business as usual. There will be no live entertainment, bar service, spas, buffets, or valet parking. When those amenities are restored, they will be operated in a manner consistent with physical distancing guidelines. Other Caesars properties and dining amenities are expected to reopen based on customer demand.

Boyd Gaming in May reopened three Louisiana properties (Delta Downs Racetrack and Casino, Evangeline Downs Racetrack and Casino and Treasure Chest Casino) and two Mississippi properties (IP Casino Resort in Biloxi and Sam’s Town Hotel and Gambling Hall in Tunica).

 

Stock performance updates and recent news:

Our proprietary sports gaming index has been on a tear since the March market lows led by Penn Gaming (PENN) +600%, Full House Resorts (FLL) +565% and Eldorado Resorts (ERI) +450%. In fact, many of the casino/resort stocks are within striking distance of their pre-COVID-19 highs and may be fairly valued for now. Moreover, the group may be vulnerable to the Wall Street maxim “sell on the news” as the reopening of Las Vegas looks imminent on June 4.

 

 (Penn National Gaming)

penn daily

 

Several sports gaming only plays may have further to run.

 

(Draft Kings)  

draft king 5 2020

 

Draftkings Inc, (DKNG) is the reigning” King of the Hill” in publicly traded pure sports gambling plays measured in terms of market capitalization and revenues and boasts a breathtaking valuation of nearly 100 times its trailing 12-month revenues .Q1 2020 revenue rose as its online sports betting business went live in more states and it saw strength in iGaming business, such as online blackjack and roulette. QTRLY REVENUE GREW 30%, DESPITE COVID-19. Management has issued 2021 guidance reiteration for $700 million of revenue, an increase of over 30% from FY2020 estimates and doesn’t expect an impact to FY2021 revenues due to COVID-19. DKNG is now up ~44% from opening price since company’s Nasdaq debut on Apr 24. DKNG Reported q1 rev& eps misses of approximately 19%, but got a COVID-19 pass. The Street’s mean price target is $32, up about 12% from current levels. We would wait for a pull back for a more attractive entry point.

William Hill (WIMHY), may look like the better value on the surface but WIMHY derives only 8% of revenue from the fertile US sports gaming markets. Top line revenue growth is a tepid 6%.

We urge management to consider a spinoff of its faster growing US division to enhance shareholder value. The Street analysts’ mean upside estimate is approximately 12%.

Score Media and Gaming Inc. (SCR.V) is a Canadian-based company that seeks to leverage its position in sports info applications and partnership to operate online sports gambling with Penn Gaming (Penn) to attain rapid growth.

Score Media was temporarily granted a sports wagering vendor license for Indiana. Receipt of this temporary license is the first step of a multi-stage regulatory approval and licensing process that must be satisfied before the company can offer wagering in Indiana. SCR.V secured market access to offer mobile sports betting in Indiana due to its alliance with Penn National Gaming (PENN) and anticipates launching theScore.Bet later this year.

Canadian banking firms have a price target of .93( cdn), approximately 50% above current levels. The company has disappointed on revenue growth over the last two consecutive quarters, missing estimates.

 

(Singular Research Sports Gaming index)

gaming index 5 2020

 

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Singular Research Director’s Letter: April performance 2020

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Singular Research’s April 2020 Director’s Letter

 

 In April, there was progress in the fight against the Corona virus as social distancing and quarantine measures appeared to have slowed new cases and deaths.  Gilead’s Remdesivir brought new hope to Corona virus patients and the stock market as initial trials reduced hospitalization and mortality rates.  Many Americans received their $1,200 stimulus check and the U.S. central bank bought $30 billion per day in Treasuries.  The Small Business Administration’s (SBA) first round of loans totaling $342 billion dried up halfway through the month.  Later in the month, the House approved another round of loans totaling $310 billion.  With the stock market rallying, state economies re-opening, and strong progress being made on the fight against the Corona virus, many believe the worst may be over.

The April Purchasing Managers Index (PMI®) was still in contraction territory, registering 41.5 percent, a decrease of 7.6 percentage points from the March reading of 49.1 percent.  Similarly, the Conference Board Leading Economic Index® (LEI) for the U.S. declined 6.7 percent in March to 104.2 (2016 = 100), following a 0.2 percent decrease in February and a 0.4 percent increase in January.  The LEI decline of 6.7 percent was the largest decline in the index’s 60-year history.  The unemployment rate rose to 14.7% (4.4% in March), as workers were furloughed and businesses closed.

 

For the month of April, the Singular coverage list outperformed the S&P 500 and the Russell 2000 by 130 and 32 basis points, respectively.  Year-to-date, the Singular coverage list has outperformed the Russell 2000 by 405 basis points and underperformed the S&P 500 by 733 basis points, respectively.  As progress is being made in the fight against the Corona virus, markets rebounded significantly from March lows.  Investors displayed enthusiasm over industries such as telecommunications and technology that could weather the Corona virus storm better than others.

april 2020 top 5 performance

 

SA was our top performer in April as gold prices increase in inflationary times.  Gold is also viewed as a haven in times of uncertainty.  BYND also did well as meat processing plants had supply chain issues, leading consumers to buy more plant-based meat as an alternative.  CMTL, ROKU, and RUBI all experienced increased usage of their products while consumers remained in quarantine.

april 2020 worst 5 performers

EHTH was our worst performer for the month as investors worried over the negative effects the Corona virus may have on health insurers; however, the company reported record earnings in April which has led to a strong rebound of EHTH’s stock price in the month of May.  ZEUS and DAKT were roughly eight percent lower as demand for their products have recently come into question.  With large gatherings and sporting events currently on hold, demand for DAKT’s score boards have decreased.  Furthermore, as oil prices cratered in April, investors became wary of the demand and usage of GEOS’s ocean bottom discovery technology for oil deposits. 

For April, we initiated a short position on Zoom Video Communications, Inc. (ZM).  Zoom Video Communications provides a cloud-based video communication platform for enterprises. The company's platform enables face-to-face video experiences and connects users across various devices and locations in a single meeting.

april 2020 new initiation

 

We wish to thank our clients for their support and belief in our process.  To learn more about Singular Research and register for a 14-day trial offer, please follow the link below.  

14-Day Trial Offer

 

Thank You

Robert Maltbie, CFA
Singular Research, President
818-222-6234(office)
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Sports Gaming – Primed to Lead on the Road to Recovery

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las vegas

Normally bustling with traffic, the Las Vegas Strip remains closed with a heavy police presence on a Friday night.

 

Las Vegas casinos are closed, secured by barricades and heavily guarded by police, the vibrant buzz of the world-famous Strip quashed by Gov. Steve Sisolak’s order to shut down all gaming activity on March 17.

On April 30, he laid out a “Roadmap to Recovery” that extended the shutdown through May. Phase one allows the reopening of some businesses on May 15, but does not include casinos, bars or nightclubs.

Sisolak gave no definitive date for resuming those businesses, nor did he provide details on subsequent phases.

According to national polls, roughly two-thirds of Americans believe it’s too early to reopen businesses at the risk of bringing on a second wave of coronavirus infections and deaths. Online sports gaming faces no such handicap.

However, protesters are pushing back across the nation, and at least 30 states have opened businesses adhering to health guidelines and capacity restrictions. Some business owners are reopening without permission, prepared for legal action if necessary.

It’s past time to get people back to work and proceed cautiously with ramping up the economy, says Las Vegas Mayor Carolyn Goodman.

 

Lockdown called ‘Total insanity’

The mayor ignited a storm of media backlash and public criticism when she labeled Gov. Sisolak’s protracted lockdown of all nonessential businesses, including Strip hotels and casinos, as “total insanity.”

Her interview with CNN’s Anderson Cooper went viral when she mentioned that “we’ve had viruses for years,” while thousands of Las Vegans cruised the Strip two days after the interview in support of the mayor’s call to restart the economy.

Nevada’s Assembly Republican Caucus urged Gov. Sisolak to start the process of reopening the economy. But he has remained recalcitrant, pledging to delay re-opening the casinos until the phase three or four, at the tail end of his plan, indicated to be late May or even into June. MGM resorts (MGM) is studying a plan to hosting the re-start of the NBA season at its various properties, a potential catalyst to accelerate sports gaming.

 

Chomping at the bet

With NBA and MLB seasons suspended and uncertainty about the NFL, pent-up demand for sports gambling is undeniable. The sentiment is that gamblers are eager to return to their favorite sports book or betting app.

Prior to mass disruption in the national economy, online sports gaming leader, Score Media and Gaming (SCR.V) saw “great momentum” across its core operations, Chairman and CEO John Levi said in his second-quarter earnings conference call.

In sports betting, the company achieved quarter-over-quarter growth in both gaming handle and gross gaming revenues with increases of 58% and 83%, respectively, and further enhanced development of theScore Bet media and gaming platform.

Score secured market access to operate in Colorado through an agreement with a subsidiary of U.S. gaming operator, Jacobs Entertainment, and remains on track to launch theScore Bet in both Colorado and Indiana later this year, subject to receiving licenses and approvals.

“We continue to strategically pursue market access opportunities across the U.S. and offer our support to legislative efforts to progress sports betting, both in the U.S. and in Canada where possible,” Levi said.

Score also finalized a deal to become an authorized sports betting operator of the NBA, providing access to official NBA betting data and related marketing rights for theScore Bet.

In late April, International Gaming Technology (IGT) signed an agreement to power Circa Sports’ PlaySports mobile sports betting app in Colorado. That followed Circa’s launch plans for the app earlier in the year in partnership with Century Casinos (CNTY).

“We look forward to introducing patrons and sports fans in Colorado to the excitement of Vegas-style sports betting through the Circa Sports Colorado app,” said Derek Stevens, CEO of Nevada-based Circa Sports.

DraftKings, (DKNG) went public in April and stock immediately jumped 10 percent, giving the Boston-based sports betting platform a market value of more than $6 billion. Morgan Stanley projected 31 percent revenue growth through 2025.

While 14 states have legalized sports betting since 2018, we believe at least 10 more will follow in the aftermath of COVID-19, which has severely depleted state budgets and reduced tax revenue. The online sports gambling hold is expected to grow from $1.5 billion in 2019 to $12 billion in 2025, thus increasing the appeal to mega resorts such as MGM Resorts International (MGM) and Caesars Entertainment Corp. (CZR).

League officials are discussing how best to resume play, possibly restricting games to geographic regions and limiting attendance. NBA Commissioner Adam Silver said the league is “not in a position to make any decisions, and it’s unclear when we will be.”

MLB officials, team owners and players are optimistic about starting the baseball season this year, though games could be played in front of empty stadiums.

 

Release the data

Las Vegas Mayor Goodman wants available data from every major city in the world to be examined to determine the safest path to reopening.

Though Nevada health officials won’t share the methodology that justifies the governor’s shutdown, the initial goal of “flattening the curve” for coronavirus cases is being accomplished in key areas such as New York City and New Jersey.

By objective standards using moving averages to smooth out spikes, Nevada should be removing its stay-at-home order. New coronavirus cases per million population have shown a downward trajectory since early April, and death rates have declined for more than 14 days.

Now we have a harder goal to define: widespread testing.

“The conundrum of the asymptomatic poses a significant fly in the ointment for any regime of testing, particularly since there are no known vaccines yet discovered to cure any corona viruses and the concept of herd immunity is being disputed for eliminating COVID-19,” said Robert Maltbie, CFA and president of Singular Research. With the public and the “science” opposing a rapid reopening of the physical resorts and casinos, online gaming looks primed to breakout first.

 

casino open 2020

 

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Singular Research Director’s Letter: March performance 2020

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Singular Research’s March 2020 Director’s Letter

 

In March, the Corona virus continued to spread throughout the world, making the U.S. the world leader in confirmed cases.  The summer Olympics were postponed until 2021 and countries began closing their boarders with mandatory lockdowns in an attempt to curtail the spread of the Corona virus and its damage to human life and the economy.  Domestically, the March Purchasing Managers Index (PMI®) fell into contraction territory, registering 49.1 percent, a decrease of 1.0 percentage points from the February reading of 50.1 percent.  Similarly, the Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.1 percent in February to 112.1 (2016 = 100), following a 0.7 percent increase in January and a 0.3 percent decline in December.  The Conference Board has flatly stated that the Leading Economic Index® will not show improvement in March.  The unemployment rate rose to 4.4% (3.5% in February), as workers were laid off due to the negative effects of the Corona virus.

 

singular march 2020 performance

 

For the month of March, the Singular coverage list outperformed the Russell 2000 by 149 basis points and underperformed the S&P 500 by 768 basis points, respectively.  Year-to-date, the Singular coverage list has outperformed the Russell 2000 by 337 basis points and underperformed the S&P 500 by 733 basis points, respectively.  As the Corona virus continues to spread domestically and globally, small businesses are the most affected because of their lack of resources to weather such volatile times.  Investors continue to look favorably to companies that may not be negatively affected as others, such as precious metals and healthcare.

 

top 4 performance march 2020

 

FND was our top performer in March mainly because it is a short position.  As fears of the Corona virus exacerbate, investors have and will continue to look to safe haven plays such as AMRK and EHTH, both of which should benefit in times of pandemonium.  Interestingly, AMRK and EHTH were on our top performers list for the month of February.

 

worst 5 performers march 2020

 

CMTL was our worst performer for the month after delivering a slightly weaker second quarter than expected and lower guidance for the remainder of the year; however, in January, the company just acquired Gilat Satellite Networks, Ltd., and we believe this acquisition will position the company well for 2021 and beyond.  RUBI was our second worst performer for the month even after reporting strong fourth quarter results in late February.  Given the national quarantine and shut down of the U.S. economy, investors may believe that companies will not be spending as much on advertising, thus hurting RUBI’s top line.  NMIH, a private mortgage insurance company, also had dismal results as investors worried over the company’s future success if many Americans may lose their jobs and their ability to stay current on their loans.  GEOS also had a poor month as the price of oil collapsed, worrying investors about demand for GEOS’ products.  Finally, BLX had a dismal month as the Latin American economy also has fallen on tough times due to the Corona virus; many investors fear of an increased delinquency rate on BLX’s loans.

For March, we initiated coverage on the LGL Group, Inc. (LGL).  The LGL Group manufactures custom-designed highly engineered electronic components and instruments. The company’s products are primarily used in defense, aerospace, and Internet Communications Technology (ICT) industries.

 march 2020 new initiations

 

We wish to thank our clients for their support and belief in our process.  To learn more about Singular Research and register for a 14-day trial offer, please follow the link below.  

14-Day Trial Offer

Thank You

Robert Maltbie, CFA
Singular Research, President
818-222-6234(office)
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Top Deep Value Plays

 

Our Top Deep Value Plays for Investors with a 1 to 2 Year Time Horizon

              At Singular Research, we focus on small and micro-cap stocks that are undercovered on Wall Street.  These stocks have a niche business model and have yet to be widely discovered.  As a result of the recent market decline from the Corona virus pandemic, several of the companies under our coverage now pose great buying opportunities for the investor with a longer-term time horizon.  To start our discussion, we will first show a market comparison of where the market is today versus the market conditions in 2008/09.  We will then describe five of our top, most undervalued coverage, why we believe so, and where we see these companies headed in 2021 and beyond.    

 

A Comparison of the S&P 500, Now vs. 2008

comparison sp 500

              By comparing current conditions of the S&P 500 to what they were in 2008, we want to show investors that the stock market is not valued much differently than what it was twelve years ago.  There are, however, arguments for and against whether we are at a current market bottom.  The point of this research article is to help one understand current company valuations and realize that there are attractive buying opportunities to the patient investor with a long-term time horizon. 

              First, before discussing our top undervalued ideas, we will help you understand the value metrics that lead us to believe these companies are truly undervalued.  Value ratios such as debt-to-equity help us understand if the company’s balance sheet is strong and likely to withstand recessionary times by not having excess interest payments.  A company’s book value (assets minus liabilities) per share helps us understand what the true value of the company is regardless of where the stock price is currently trading.  Furthermore, once we have a good understanding of the true value of the company, we look at its relative valuation, or how the company is trading relative to its peers.  In this article, we will look at the price-to-earnings, price-to-book, price-to-sales, and enterprise value-to-ebitda ratios.     

 

Olympic Steel, Inc. (ZEUS)

$14.75 Price Target, Buy, Current Price: $8.83 (4/7/20)

              Olympic Steel is a leading U.S. metals service center focused on the direct sale and distribution of large volumes of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel, aluminum, tin, pipe, and tubular products.

olympic steel 04 07 2020

 

              For Olympic Steel, we want to emphasize the firm is largely undervalued from a book value per share perspective.  The firm trades $18 below what it is currently valued for its equipment and machinery.  Similarly, the industry average price-to-book ratio for iron and steel producers is 1.01.  ZEUS’s price-to-book ratio is 0.71 below the industry average.  If ZEUS were to trade at the industry average price-to-book ratio, the share price would be $27.18, over three times where it currently trades.

 

 

Banco Latinoamericano (BLX)

$24.00 Price Target, Buy, Current Price: $9.85 (4/7/20)

              Banco Latinoamericano, a multinational bank, primarily engages in the financing of foreign trade in Latin America and the Caribbean. The company operates through two segments, Commercial and Treasury.

banco latinoamericano 4 10 2020

 

              Bladex earned $86 million in 2019 and has a dividend yield of 15.6%.  The company has paid a dividend of $0.385 per share since 2014.  The company, too, is undervalued on a book value per share basis as BLX trades $15.63 below its book value per share.  On a relative valuation basis, the average price-to-book ratio for regional banks is 0.82; therefore, if BLX were to trade with its peer average, BLX should be valued at $20.89.  Furthermore, BLX’s P/E ratio is 2.85 below its peer group average.  On a P/E basis, BLX should be trading at $16.17 if it were to trade in-line with its peers.

 

 

Comtech Telecommunications Corp. (CMTL)

$30.25 Price Target, Buy, Current Price: $14.76 (4/7/20)

              Comtech Telecommunications Corp. designs, develops, produces, and markets products, systems, and services for communications solutions in the United States and internationally. The company operates through Commercial Solutions and Government Solutions segments. Comtech Telecommunications Corp. was founded in 1967 and is headquartered in Melville, New York.

comptech 04 2020

 

              Although not trading near its 52-week low, CMTL, like the aforementioned, is trading below its book value per share.  The industry average for communications equipment companies’ P/E, P/B, and P/S ratios is 20.0, 1.83, and 2.64, respectively.  On those three ratios, CMTL is trading vastly below their peers.  If we were to equally average those three ratios and use CMTL’s trailing twelve month earnings and sales per share, we would come up with a fair value price target of $46.87.  CMTL’s EV/EBITDA ratio of 5.90 is also well below its peer group average of 18.69.

 

 

L.B. Foster Co. (FSTR)

$18.75 Price Target, Buy, Current Price: $13.40 (4/7/20)

              L.B. Foster Co. engages in the manufacture, fabrication, and distribution of products and services for the transportation and energy infrastructure. The company operates through the following segments: Rail Products and Services; Construction Products; and Tubular and Energy Services.

lb foster co 4 2020

              As investors feared the worst regarding the Corona virus and its negative effects on the U.S. economy, L.B. Foster has had a wild ride.  The company is trading below its book value per share, although not as badly as some already mentioned.  For a company that is still earning money, we believe FSTR has and will weather this storm nicely.  At P/E, P/B, and P/S ratios well below the industry peer averages of 9.04, 1.06, and 0.59, we believe FSTR has more room to the upside.  The firm’s EV/EBITDA ratio is also below its peer average of 7.93.

 

 

REX American Resources Corp. (REX)

$90.00 Price Target, Buy, Current Price: $47.54 (4/7/20)

              REX American Resources Corporation, together with its subsidiaries, produces and sells ethanol. It operates through two segments, Ethanol and By-Products and Refined Coal. The company also offers dried distillers grains, modified distillers grains, and non-food grade corn oil.

rex 04 2020

              Lastly, we believe REX is undervalued and has a much higher potential.  As fears of the Corona virus ease and China starts to demand ethanol, we believe that REX’s valuation metrics will increase from current levels.  Specifically, REX’s price-to-book and price-to-sales ratios are below their peer group average of 0.80 and 1.34.  If REX begins to trade in-line with its peers, we believe its share price could almost double from where it currently trades.

              One common theme in these stocks is that they are all trading below their book value per share, P/E, P/B, P/S, and EV/EBITDA ratios.  We believe, with time, that these stocks will not only realize their true valuation but exceed their potential.  If one has a long-term time horizon, any one of these stocks would be a good buy and hold candidate.

              Thank you for reading our article and if you are interested in learning more about us and a subscription offer to our services, please go to www.SingularResearch.com.  For a complimentary research report on any of these companies mentioned, please e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. or call 818-222-6234

Sports Gambling Outlook

 

THE LONG TIME OUT IN SPORTS GAMING:

Winners & Losers

 

mgm grand closed

(Visitors are turned away from the entrance to the MGM Grand in Las Vegas, which was closed by Gov. Steve Sisolak’s orders on March 17.)

 

The coronavirus pandemic has thrown the country into a personal and financial abyss like none other witnessed by generations of Americans, from the bombing of Pearl Harbor to the terrorist attacks on New York City and Washington, D.C., from cliff-diving days on Wall Street to periodic years of recession.

COVID-19 has virtually shut down businesses across the globe. It’s an unparalleled situation and we must help each other as much as possible to prevail over these unforeseen challenges.

How the United States and other countries rebound from this crisis is as good of a guess as the final death tally resulting from the virus.

Few industries have been hit harder than gaming, which took a two-fisted slam from closures of casinos and suspended sports seasons and cancelled sporting events.

Despair begets hope, and with it comes opportunity. In states that have seen tax revenue plummet as millions of Americans self-quarantine at home, spending only on necessities, legislators may be open to fast-track approval of legalized sports gambling.

Howard Jay Klein, gaming analyst and publisher of The House Edge casino investment site, sees a burst of sports betting legalization across the United States in the aftermath of the virus.

“It will be driven by officials desperate to replenish the disastrous depletion of state coffers by the virus pandemic,” Klein said on Seeking Alpha. “It will benefit from the starvation diet sports bettors are now subsisting on until play resumes. Once the spigots are open, we see sports betting moving to 24 states from its current 14 within the next year and a half.”

Interest in legalized sports betting began ramping up following the U.S. Supreme Court’s 2018 landmark decision in Christie v. NCAA, which struck down the Professional and Amateur Sports Protection Act.

Michigan and Illinois launched regulated sports betting in early March, then had to suspend operations due to the virus, losing out on the NCAA tournament, the Masters and NBA playoffs.

Klein believes Caesars Entertainment (CZR) and Eldorado Resorts (ERI), which had agreed to a merger prior to the virus outbreak, are poised to benefit from legalized sports betting. They had good positioning with sports betting partners before the virus hit, and the new company will become a national player in the space, he said.

However, the $17.3 billion merger could be jeopardized by the coronavirus fallout. Caesars stock has dropped 52 percent from a year ago to $6.46 as of April 2, while Eldorado is down 82 percent to $10.67 over the same period.

Caesars furloughed 90 percent of its domestic workers in the wake of Nevada Gov. Steve Sisolak shutting down the Strip on March 17. For the first time in Nevada history, casinos went dark.

U.S. unemployment claims skyrocketed to 10 million in March, and many people and small businesses are relying on the government’s $2.2 trillion coronavirus relief package to get through the coming months.

With all casinos and hotels in Las Vegas and many other regions on lockdown at least through April 30, industry stocks have been slammed, down 50 percent to 80 percent. Many of the players are resorts or hotels that are highly leveraged, although many have slashed variable costs.

Following conversations with casino industry executives, we estimate that total operating expenses are down to 25 percent to 30 percent of pre-corona levels.

The operators with the highest leverage have suffered the most and many may be part of the list of beneficiaries of the $21 billion relief package requested by the industry. Meanwhile, they are on the hook for massive debt payments.

While sports gamblers desperate for action occupy themselves with nontraditional activity – betting on Turkish soccer, virtual horse racing, table tennis, esports and even weather conditions – the estimated $150 billion global market opportunity awaits the “green light” and could be a major rebound play for investors to benefit from pent-up demand.

South Point hotel and casino owner Michael Gaughan isn’t so sure about the impetus of the economic downturn on legalized sports betting.

“Only God knows what other states will do,” he said. “I don’t think this will speed sports gaming up.”

South Point was handicapping sports for six Indian casinos for a fee, and the sports book has implemented betting from mobile devices and in-game wagering, Gaughan noted.

The longtime Las Vegas casino owner is not bullish on the gaming industry, which has seen stocks drop across the board.

“But there are some gaming stocks that are undervalued at this moment that might be worth buying,” he added. “Sands? Boyd? Nobody really knows where we are going.”

 

Next report: Early risers: top picks for 2020-21

Sports Gaming Alpha Portfolio  (12/31/2019 - 4/6/2020)

sport gambling alpha portfolio

 

Singular Research Staff
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