Century Casinos Compelling Small-Cap Gaming Stock, Says Analyst

Early Friday, Century Casinos (NASDAQ:CNTY) delivered second-quarter results that slightly beat Wall Street expectations. While that wasn’t enough to prevent a 3% decline by the stock, analysts remain upbeat on the name.

Century Casinos
The Sparks Nugget Casino in Sparks Nevada. It’s seen contributing to growth for Century Casinos. (Image: The Nevada Independent)

In a note to clients, Stifel analyst Jeffrey Stantial says investors are likely looking past casino operators’ year-to-date results, but rather focusing on the potential for rampant inflation to pinch gaming spending heading into 2023. Still, he rates Century a “buy,” with a $20 price target — more than double where the shares closed on Aug. 5.

While visibility is limited, we remain constructive nonetheless given a wide discount to the group (~5x 2023E Adj. EBITDA vs. regional peers 6.5-10.0x),” writes Stantial.

Despite the Friday sell-off, Century stock is higher by 14.31% over the past month. But it’s down 31.12%, and needs to double to return to its 52-week high.

Missouri, Reno Catalysts for Century

The Colorado-based company is in the midst of working through the $195 million acquisition of the Nugget Sparks casino. It is also acquiring a 50% interest in the real estate firm that owns the property assets of that gaming venue. Announced in February, that transaction marks Century’s entry into Nevada.

When the Nugget Sparks deal is completed, Century will operate nine casinos in the US and Canada. The operator’s entry into Nevada, as well as its two venues in Missouri, are viewed as near- and long-term catalysts for the stock.

“Management reiterated $3.6M project cost for the Caruthersville (Missouri) hotel, with $2.2M spent to-date (vs. $1.3M at Q1). The property is on track with an initial target to open this month. More impactful, preparations to begin building the $47M (unchanged) on-shore facility are largely complete, as CNTY recently received legislative approval to bring its property on-shore,” adds Stantial.

The analyst points out that in the June quarter, Century’s pair of Missouri casinos contributed to out-performance, with modest margin improvement at its Colorado gaming properties. That quartet of casinos offset some of the lag at the Mountaineer in West Virginia.

Century Investors Waiting on More Transaction News

Entering 2022, analysts and investors widely expected to be active on the mergers and acquisitions front, while divesting its two-thirds stake in Casinos Poland. With the Nugget Sparks deal, Century somewhat lived up to the consolidation speculation. But geopolitics are getting in the way of a Poland sale.

The company announced in January 2021 that it’s looking to divest that interest, but no deal has been reached. Now, those efforts are being delayed by the Russia/Ukraine conflict. Interestingly, the war in Ukraine is providing support to Century’s Poland operations, but it appears investors could ascribe some premium to the stock if the firm becomes a North America-only gaming outfit.

We expect this continues to reflect heathy demand post re-opening, as well as an influx of people driven into Poland by the conflict in Ukraine. We expect investors are continuing to look for a potential sale here as management seeks to position CNTY as a North America only operator,” concludes Stantial.

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