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Kareem Dakak Sagar Desai Garrett Klatte William Xiao

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Tropicana Entertainment (OTC: TPCA)


Presentation Outline

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Company and Financial Overview Investment Thesis Investment Catalysts Future Opportunities Valuation

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    

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Company and Financial Overview


Company Overview

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Tropicana Entertainment is an owner and operator of regional casino and entertainment properties in the United States

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Rooms (~15%)

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Casinos (~70%)

Locations

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Revenue Streams [1]

F&B (~15%)

1. As of latest 10-Q Sources: TPCA 10-Q Filing, TPCA 2013 Lender Presentation

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Income Statement and Key Statistics 2008A $417.8

Total Revenue % Growth EBITDA % Margin % Growth

65.2 15.6%

Net Income

(5,634.2)

Fiscal Year Ended December 31 2009A 2010A 2011A 2012A $375.6 $607.1 $600.0 $593.4 (10.1%) 61.6% (1.2%) (1.1%) 44.8 11.9% (31.3%)

73.5 12.1% 64.1%

71.2 11.9% (3.1%)

(255.9)

6,657.2

(2.9)

77.8 14.0% (5.9%)

87.8 12.8% 12.9%

19.1

18.2

Tropicana Entertainment

Market Cap

$394.7

Enterprise Value

$506.4

Book Value

$565.7

Shares Outstanding

26.3

Ticker

TPCA

Current Stock Price

$15.00

52-Week Range

$13.6 - $19.0

EV/EBITDA (LTM)

5.7x

P/E

11.4x

P/FCF

8.9x

Beta

0.35

34.0

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Evansville, IN

Laughlin, NV

Atlantic City, NJ Greenville, MS Baton Louge, LA Lake Tahoe, NV

Noord, Aruba

St. Louis, MO

2013 Revenue

$119.0

$57.0

$238.0

$25.0

$57.0

$44.0

$9.0

$191.0

2013 Adjusted EBITDA

35.0

15.0

17.0

8.0

6.0

3.0

(1.0)

38.0

2013 EBITDA Margin

29.1%

25.9%

7.2%

31.9%

10.4%

5.7%

(10.1%)

19.9%

% ∆ from 2011 Margin (bps)

220

220

190

1,230

(1,150)

(400)

3,810

% of Total Revenue

16.1%

7.7%

32.2%

3.4%

7.7%

5.9%

1.2%

25.8%

% of Total EBITDA

28.9%

12.4%

14.0%

6.6%

5.0%

2.5%

(0.8%)

31.4%

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Location

Note: Lumiere Place acquired in 2013 Sources: TPCA SEC Filings

Company Name

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Income Statement (Property-Level)

82.7 13.9% 16.2%

2013A $557.7 (6.0%)

LTM 9/14 2014A $686.0

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($ in millions)

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Financial Overview

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Investment Thesis


Investment Thesis

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Situation  String of casino closures in Atlantic City has caused a knee-jerk reaction in Tropicana’s stock price, which has dropped from $18.85 on 7/14 to $15.00 on 1/22 (~20% decline)

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Unwarranted Reaction  This price reaction is unwarranted – although Tropicana’s AC property accounts for ~32% of the company’s revenue, it only accounts for ~14% of its EBITDA  Closure of competitors actually creates a potential opportunity to capture additional market share

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Additional Reasons for Undervaluation  Out-of-favor, mature industry - especially gaming in non-Vegas markets  Thinly traded micro-cap stock (~ 8,445/day), potential of being priced inefficiently  No analyst coverage

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Opportunity  Strong cash balance and recent behavior point to future appetite for acquisitions  Tropicana is extremely undervalued from multiple valuation methodologies  Financial statements don’t tell complete story when considering NOLs and replacement value  Icahn Enterprises (largest shareholder) has strong track record for turning around casinos  Improving macroeconomic conditions will drive up consumer discretionary spending 7


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Investment Catalysts


Significant Events in Company History

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TPCA Stock Performance – 2008-2015 $25.0

December 20, 2013: Atlantic Club Sold to Caesar’s Ent. & Tropicana Ent. For $23 million

March 2011: Tropicana sells the Horizon Casino in Vicksburg for $3 million

Early 2012: Atlantic City casinos begin to close their doors

$0.0

Jan-Sept 2014: 4 Atlantic City casinos announce closing

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$5.0

August 2013: Buys Lumiere Casino for $260 million

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$10.0

March 8, 2010: TPCA emerges from reorganization w/ Icahn leading the charge

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$15.0

May 1, 2008: Tropicana Entertainment LLC declares Chapter 11 bankruptcy

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$20.0

July 7, 2014: Sells River Palms for $7 million in Laughlin

As Private Entity

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Rebounding U.S. economy and secular change in casino industry will drive corporate change… 160.0

12.0% 9.9%

140.0

10.0%

120.0 110.0

100.0

88.7

80.0

6.0%

5.6%

60.0

20.0

4.0% Consumer Confidence Index

38.6

Unemployment

2.0%

Economic metrics reach pre-recession levels  Unemployment rates, reaching close to 10% during the trough of the recession have dropped to 5.6% 

Consumer confidence index at 88.7, up significantly from low of 38.6

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40.0

8.0%

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Consumer Confidence Index and Unemployment (1998-2014)

Casino Spending by State (2003-2012)

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15.0% 10.0%

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Non-hotel casino operators in the US have dropped from 418 in 2005 to 325 in 2014, a 22% decrease

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Casino industry possibly undergoing secular change  Tropicana’s key markets (NJ, IN, NV, MO) were all negatively affected by the recession but have not necessarily recovered

Nevada

New Jersey

Indiana

Missouri

5.0%

– 2003

2004

2005

2006

2007

2008

2009

2010

2011

(5.0%) (10.0%) (15.0%)

Companies in a stagnant industry and pressure to succeed will force consolidation or bankruptcy Sources: American Gaming Association, CapitalIQ

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Elimination of competitors in Atlantic City is an opportunity, not red flag 2013 AC Casino Revenue ($ 000)

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January 13th, 2014: Atlantic City Club Casino closes – bought out of bankruptcy court by Tropicana Entertainment and Caesars

Atlantic Club

$141,870

5.0%

Bally's Atlantic City

244,450

8.5%

Borgata

616,970

21.6%

Caesars

336,447

11.8%

Golden Nugget

124,871

4.4%

Harrah's Atlantic City

356,367

12.5%

Resorts

130,803

4.6%

Revel

155,153

5.4%

Showboat

193,247

6.8%

Tropicana

228,022

8.0%

Trump Plaza

73,954

2.6%

Trump Taj Mahal

259,914

9.1%

Casino Revenue

$2,862,068

June 19th, 2014: Revel files for bankruptcy

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June 27th, 2014: Caesars Entertainment announces it will close Showboat Casino Hotel

100.0%

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July 12th, 2014: Trump Entertainment announces that Trump Plaza will close in mid-September

4/12 AC casinos have closed within the last year, freeing up ~20% of market share Sources: New Jersey Casino Control Commission – 2013 Annual Report

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Tropicana has a better bottom-line profile than peers and is much less levered…

Profitability

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Publically Traded Regional Casino Operators ($ in mm)

3-Yr Growth Rates

Valuation Metrics

Company Name

Gross Margin

EBITDA Margin

Pinnacle Entertainment Inc. Boyd Gaming Corporation Eldorado Resorts, Inc. Penn National Gaming Inc. Isle of Capri Casinos, Inc.

77.4% 52.4% 36.6% 43.3% 80.0%

25.1% 20.1% 16.3% 10.5% 18.1%

24.7% 7.7% (9.4%) (1.4%) 2.5%

34.4% 10.6% (23.4%) (26.5%) (2.0%)

$5,209 4,715 2,141 1,326 896

9.5x 8.2x 99.3x 4.9x 5.1x

40.4x NM 0.0x NM NM

7.0x 5.8x 3.3x 3.7x 5.4x

7.3x 6.0x 3.6x 4.5x 5.9x

1.2x 1.0x 1.2x 1.5x 1.1x

Median

52.4%

18.1%

2.5%

(2.0%)

$2,141

8.2x

20.2x

5.4x

5.9x

1.2x

Tropicana Entertainment Inc.

49.3%

12.9%

11.4x

1.3x

3.3x

3.2x

EV/ P/E Ratio EBITDA

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Revenue EBITDA

Enterprise Value

Credit Ratios

5.1%

$506

5.7x

Debt/LTM Interest EBITDA Coverage

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2.8%

Net Debt/LTM EBITDA

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Tropicana is easily the most financially-sound company in the industry Only one other competitor (Pinnacle) has positive net income

Tropicana is significantly less levered than its peers (1.3x vs. industry median of 5.4x)

Tropicana has a much better interest coverage ratio (3.2x vs. industry median of 1.2x)

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Despite all of this, Tropicana still trades at a discount relative to its peers of 2.5 turns of EBITDA 12


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Future Opportunities


Tropicana’s largest shareholder, Icahn Enterprises, has an incredible track record in casino investing

Purchase Price

Equity

$300

Purchase Year

Exit Year

% in Value

$1,300

2007

333.3%

270

2006

315.4%

2009

Holding

Holding

Holding

2010

Holding

Holding

Holding

1998

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Equity

65

486

2000

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First-Lien Debt

Exit Price

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Asset Class

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Investment

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Icahn Enterprises (68% shareholder of TPCA) has turned around multiple casino operations in Vegas and Atlantic City in the past:  Icahn is likely to swap his debt in Trump for equity; could consolidate with Tropicana  Members of Tropicana’s seasoned management team bring 16-33 years experience each

Equity

Sources: New York Times, Las Vegas Sun

$200

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Strong balance sheet flush with cash and “hidden” assets

$87.8 5.7x 500.5 184.0

Total Sources

684.4

$67.8 $77.8 EBITDA $87.8 $97.8 $107.8

4.7x 502.6 549.6 596.6 643.6 690.6

Leverage Multiple 5.2x 5.7x 6.2x 536.5 570.4 604.3 588.5 627.4 666.3 640.5 684.4 728.3 692.5 741.4 790.3 744.5 798.4 852.3

6.7x 638.2 705.2 772.2 839.2 906.2

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LTM EBITDA Industry Leverage Ratio Total Debt Assumed (+) Cash & Equivalents

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Firepower (Acquisition Potential) Analysis ($ in mm)

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Tropicana has a large balance of cash relative to its enterprise value  Potential to be used for additional acquisitions of properties at attractive prices

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As of December 31st, 2013, Tropicana had a balance of $211mm in NOLs  Positive pre-tax income forecasted for future, potential to use these tax benefits

Tropicana has great acquisition capabilities and houses a large balance of overlooked assets Sources: Company 10-Q report

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Valuation


Discounted Cash Flow Analysis ($ in millions)

Unlevered Free Cash Flows

$29.1

2013A 43.2 (2.5) 34.6 (57.3) (17.2)

$30.6

$0.8

$63.6

12.0%

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WACC

2012A 50.6 (2.9) 32.1 (44.5) (4.7)

Fiscal Year Ended December 31 2014E 2015E 2016E 2017E 59.8 80.1 85.8 91.7 (20.9) (28.0) (30.0) (32.1) 45.0 45.0 45.0 45.0 (40.0) (40.0) (40.0) (40.0) 19.7 2.4 0.7 0.7

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Adjusted EBIT (-) Taxes (+) Depreciation & Amortization (-) Capital Expenditures (+/-) Changes in Working Capital

2011A 39.6 (4.2) 31.6 (34.0) (3.9)

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Intrinsic valuation hints at large amount of undervaluation

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Discounted Free Cash Flows

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2019 EBITDA Exit Multiple Terminal Value

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Sum of Discounted Free Cash Flows Discounted Terminal Value Total Enterprise Value (-) Long-Term Debt Implied Equity Value Shares Outstanding Implied Share Price

$59.4

$61.5

$65.3

2018E 97.8 (34.2) 45.0 (40.0) 0.7

2019E 104.0 (36.4) 45.0 (40.0) 0.7

$69.2

$73.3

Years 1 53.1

2 49.0

3 46.5

4 44.0

5 41.6 149.0 8.0x 1,191.9 234.1 676.3 910.5 (294.8) $615.7 26.3 $23.41

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Alternate valuation methods also confirm significant margin of safety Replacement Value Analysis ($mm)

(-) Long-Term Debt (+) Cash & Equivalents Implied Equity Value Shares Outstanding Implied Share Price

(294.8) 184.0 609.2 26.3 $23.16

Rooms

Gaming Sq. Ft.

Estimated Replacement Cost/Sale Price

Evansville, IN

1,000

40

250

38,360

$100.0

Laughlin, NV

1,000

18

1,487

53,000

100.0

Atlantic City, NJ

5,963

130

2,079

123,980

90.0

Greenville, MS

604

12

38

22,000

25.0

Baton Louge, LA

750

20

280

28,300

50.0

Lake Tahoe, NV

550

25

437

40,000

50.0

St. Louis, MO

1,800

68

494

75,000

260.0

313

5,065

380,640

$675

Tropicana

$107.8 $21.2 $25.3 $29.4 $33.5 $37.6

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$97.8 $18.8 $22.6 $26.3 $30.0 $33.7

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Enterprise Value

Discount to Replacement Value

$506 25.0%

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$67.8 $11.8 $14.3 $16.9 $19.5 $22.1

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Multiple

6.2x 7.2x 8.2x 9.2x 10.2x

2014 EBITDA $77.8 $87.8 $14.1 $16.5 $17.1 $19.8 $20.0 $23.2 $23.0 $26.5 $26.0 $29.8

Slots

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$87.8 8.2x $720.0

Property

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2014 EBITDA Industry Multiple Implied EV

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Comparable Companies Method ($mm)

Note: Industry multiple derived from comps on slide 12 , replacement values derived from precedent construction/sale values of similar properties

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$35.0

$30.0

$29.8

$30.0

$25.0

$21.5

$19.0

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Average: $22.7

$13.6

$20.0 $15.0

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Valuation Summary

$17.9

$17.1

Current: $15.0

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$10.0

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$5.0

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Comps

Replacement Value

52-Week Range

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DCF

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–

Tropicana is an attractive investment offering an average margin of safety of 51% Note: Valuation methods shown on slides 17-18

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Investment Thesis

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Situation  String of casino closures in Atlantic City has caused a knee-jerk reaction in Tropicana’s stock price, which has dropped from $18.85 on 7/14 to $15.00 on 1/22 (~20% decline)

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Unwarranted Reaction  This price reaction is unwarranted – although Tropicana’s AC property accounts for ~32% of the company’s revenue, it only accounts for ~14% of its EBITDA  Closure of competitors actually creates a potential opportunity to capture additional market share

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Additional Reasons for Undervaluation  Out-of-favor, mature industry - especially gaming in non-Vegas markets  Thinly traded micro-cap stock (~ 8,445/day), potential of being priced inefficiently  No analyst coverage

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Opportunity  Strong cash balance and recent behavior point to future appetite for acquisitions  Tropicana is extremely undervalued from multiple valuation methodologies  Financial statements don’t tell complete story when considering NOLs and replacement value  Icahn Enterprises (largest shareholder) has strong track record for turning around casinos  Improving macroeconomic conditions will drive up consumer discretionary spending 20


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Thank You


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Appendix


DCF Assumptions

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Revenue growth of 23% in 2014 (on par w/ estimates), 12% in 2015 and 3% until 2019 (inline w/ industry averages) Gross profit margins of 49.7% SG&A of 25.0% Annual D&A of 45mm Tax rate of 35% (very conservative w/ high balance of NOLs and positive pre-tax income) A/R Days – 7, Other Receivables – 11, Inventory Days – 6, Prepaids – 2% of Rev, Restricted Cash – 3% of Rev, Other Current Assets – 1.7% of Rev, A/P Days – 51, Accrued Expenses – 16.5% of COGS Annual CapEx of 40mm No NOL usage through 2019 (unsure of rules/exact figures)

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Investment Summary Company Name

Tropicana Entertainment

Ticker

TPCA

Market Cap

$394.7

Current Stock Price

$15.00

Enterprise Value

$506.4

52-Week Range

$13.6 - $19.0

Book Value

$565.7

P/E

11.4x

Shares Outstanding

26.3

P/FCF

8.9x

Net Income % Change Free Cash Flow % Change

Buybacks

RoE

% Change

2013 $557.7 (6.0%) 43.3 (14.5%) 18.1 (5.2%) 0.8 (97.5%) –

2012 $593.4 (1.1%) 50.6 27.5% 19.1 (782.0%) 30.6 4.9% –

2011 $600.0 (1.2%) 39.7 25.7% (2.8) (100.0%) 29.1 (159.9%) –

3.3

2010 $607.1 31.5

6,657.2 (48.6) –

10.5% 5.3% 7.4% 4.3%

5.2% (0.6%) 3.1% (12.2%)

5.7%

7.8% (0.8%) 3.6% 0.1%

8.5% 1.9% 3.5% 3.3%

6.6% 1.4% 0.2%

5.2%

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Operating Margin % Change

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% Change % Change

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Dividend

$145

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EBIT % Change

Q1

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% Change

$217 9.9% 22.8 123.5% 13.7 185.4% (21.8)

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Q3 Revenue

2014 Q2 $198 36.6% 10.2 22.9% 4.8 (80.2%) 26.6 706.1% –

15.3%

* - TPCA's current entity emerged from restructuring in 2010

NM

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