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Jul 5, 2021
[5 min Read]
In January 2021, I posted my due diligence on Gamehost (GH) an owner of 3 casinos in Alberta which can be found here: https://www.reddit.com/r/CanadianInvestor/comments/kr511n/gamehost_tsx_gh/
At the time I was running on the assumption that oil prices would remain low and that the stock price would pick up once things reopen based purely off pent up demand for activies outside peoples' homes. At the time of my post the stock was trading around $5.30 a share and it is now trading around $8.50 a share.
Yesterday (July 1) Alberta officialy reopened with no restrictions. I stil believe that there is significant pent up demand and I believe that a couple of unforseen factors have played in well for the company. Based on these positive trends I think the company is going to have a blow out quarter and will likely pass the $10 mark by September and possibly even past that. I think 12 is a realistic price to hit by October. That would bring it at least in line with pre-covid prices.
I will write about the positive trends:
Pent up demand for the business, low local restrictions and high outside restrictions: Alberta is the first province to remove covid restrictions. There is no social distancing or mask requirement and everything is essentially "back to normal". People are desperate to do activities outside their home such as dining, going to concerts/events and of course gambling which Gamehost offers all 3 in the communities it serves. Meanwhile, to travel outside of Alberta would be difficult to navigate various quarantine and covid restrictions that are in place in other jurisdictions. The US border is still closed (although you could fly in but even then there is restrictions based on airline requirements). This will heavily push locals to do events in their own province.
Last week the Nevada Gaming Control Board stated that gambling activities in Las Vegas were 25% above the levels seen in 2019 pre-pandemic. This is still with significant travel restrictions in terms of international destination tourists. This is huge because it shows that local people are gambling at rates far past normal years as it would be assumed that normally destination travellers are spending more than locals for a rare occasion. This is likely to happen in Alberta too. The company released a statement when their casinos opened stating that the parking lots were extremely busy and foot traffic was strong on the first day of opening.
High oil prices: when I first looked into Gamehost, the price of oil was still very low. Everyone on this board was talking about how oil was dead and I baked that assumption into my thesis. Since then the price of oil has risen dramatically. All three Canadian oil majors and the smaller oil companies posted strong results. Its no secret that Alberta is very dependent on the oil industry. Gamehost owns the only casino in Fort McMurray (Boomtown Casino), Grande Prairie (Great Northern Casino) and one of a few in Calgary (Deerfoot Inn and Casino). All 3 of these cities are hugely reliant on oil and gas especially Fort McMurray. Higher oil prices means more jobs inside and outside the oil industry. More money flowing around will mean more jobs in services and this money will see the casinos as well. When oil prices were low every oil and gas worker was cautious on spending money just in case of layoffs, this is no longer a problem. The increase in profits will mean more young people will choose to go into this profession and young people are notoriously willing to spend money gambling.
Sports betting is now legal: Bill C-218 passed and the casino will soon be able to offer sports gambling. This can be a more social event where people gather to watch sports together, bet and buy beer and food. This will be a different experience from gambling on an app and will be something that will attract a certain type of client.
Heat wave: its hot. Its especially hot in Western Canada. All 3 cities are impacted by the heat wave and were over 30 degrees this week. This means people will want to go out and socialize outside the house but won't be able to go outside for long. The casino provides the perfect place to beat the heat and have fun with friends. I don't know how long this heat wave will last but at least for the moment this is bringing people in the door.
Good management during the pandemic: the company pulled the best moves possible during the lockdowns. They paused the dividend, ramped up stock buybacks and heavily renovated all 3 casinos to expand them and make them more aesthetically pleasing for the future. The casinos were open for a few months with severe restrictions and were still profitable so the company is coming in with a strong balance sheet and hundreds of thousands of less shares than coming into it. There is now so few shares trading that sometimes there is less than a thousand shares traded a day. Once good results roll in if people want to pile in they need to pay more than a heavy float stock as the price will move up rapidly. The updates will make the place fresh and draw in more visitors for years to come.
Only casino stock left on TSX: with Apollo Management buying up Great Canadian Gaming. This is now the last option to invest in casinos in Canada directly.
Interest rates still low: people are taking on way more debt than they need to. This money as sad as it is to say will somewhat flow into services like casinos.
Now that oil prices are high, I no longer see this as a short term reopening trade but see long term potential in this as long as oil continues to pump out of Alberta. The shares are still underpriced now for a short term flip, but I believe this could pull higher into the high teens/low twenties if oil stays over $60 USD a barrel as Alberta's economy will see huge growth. I may sell some off around $12, but I have not decided yet. I am leaning towards keeping all my shares for the forseeable future.
This is not a situation where you all need to pile in on Monday, I am not trying to pump this so please do not take it as that, but I do think this stock is a screaming buy at the price its at still. Please do your own research on this, review my other post, look at sources on SEDAR and any other trustworthy source