Century Casinos in Talks to Divest Poland Operations
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Posted on: January 29, 2021, 09:30h.
Last updated on: January 29, 2021, 10:07h.
Century Casinos (NASDAQ:CNTY) revealed it’s in discussions to sell its Poland gaming venues, properties that are currently shuttered in accordance with that government’s COVID-19 protocols.
The Colorado-based gaming company owns 66.6 percent of an entity known as Casinos Poland Ltd., which runs eight gaming properties in that country. The operator announced the talks yesterday in a form 8-K filing with the Securities and Exchange Commission (SEC).
Century Casinos disclosed that it is in preliminary discussions with Totalizator Sportowy, Poland’s state-run gambling operator, regarding a potential sale of its interest in Casinos Poland,” according to the regulatory document.
The company said a definitive agreement hasn’t been reached, and that there are no assurances a transaction will be consummated.
In December, the gaming company said it was shuttering its casinos in Poland, with the expectation that the venues would reopen on Jan. 18. A day before the properties were to reopen, Century announced the casinos would remain closed through Jan. 31.
Removing Overhang, Potential Catalyst for Century
Should the gaming company divest its Poland interests, it could be a catalyst for the stock and remove negative overhang, according to one analyst.
“Not only would a Poland exit remove a long-standing perception overhang, but we believe proceeds could also be put back into use acquiring assets in the higher multiple and more shareholder-friendly US regional market,” said Stifel analyst Steven Wieczynski in a note. “We estimate a sale of CNTY’s Poland exposure could be 15 percent accretive to the shares, assuming a 5x sale multiple and 0.5x of core multiple appreciation.”
In the third quarter, the Poland operations accounted for four percent of Century’s earnings before interest, taxes, depreciation and amortization (EBITDA). However, the company still warned property closures would adversely impact its results through the first half of 2021.
Wieczynski forecast that the Poland casinos would account for just eight percent of Century’s earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) in 2022.
Tough Operating Environment
While the coronavirus pandemic appears to be an impetus for Century to exit Poland, there are other factors beyond the health crisis that make operating in the country difficult.
For example, its 50 percent tax on gaming revenue is among the highest in the world, and operators can’t market to customers outside of casinos. Additionally, gaming licenses there aren’t renewed. Upon expiration, companies must rebid for the permits as if they’re new on the scene.
Wieczynski notes Poland has been a drag on what’s an otherwise compelling story at Century, suppressing valuations and making the stock cheap relative to other regional gaming names.
“We estimate a sale of CNTY’s Poland assets could imply -6 percent to +37 percent (15% midpoint) of equity value accretion, assuming the Poland assets are sold for 4-6x Adj. EBITDAR (we believe 5x is reasonable, given the market structure) and CNTY’s blended multiple re-rates zero to one turn higher to 6-7x,” said the analyst.
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