If all goes well, Great Canadian should see things returning to normal by year-end. It depends on Canada’s vaccine rollout plan casino re-openings slated for mid-summer. It further hinges on new competition and pending decisions from the Crown Corporations.
The company is known for operating casinos and gaming facilities across Canada, with additional income from the hospitality sector. All venues have been hit by the pandemic. As a result, the stock price has fallen a whopping 62%, but it has rebounded to pre-pandemic status as the market improves.
But new competition, especially from online sites, could change the positive picture, particularly in British Columbia. However, 93% of the companies revenues come from this province and Ontario. It would help if restrictions were lifted and the vaccine is successful. Most officials expect some herd immunity by summer.
Revenues for Q4/20 and Q1/21 will potentially be even lower than the Q3/20 figure of $43.1 million. The good news is that the company has $471.9 million of cash on hand to weather the storm. In fact, it has lowered its human resources expenses by 84% and marketing and administrative costs to 80% of normal. Future performance should therefore improve.
A lot rides on decisions by the Crown Corporations. In Ontario, the OLG is responsible for land-based gaming within the province. While Great Canadian enjoys a relatively strong market position here, this could change if the OLG decides to open new gaming zones despite many providers already in the space. Currently, each service provider in Ontario gets a minimum fixed fee payment and 70% of a portion of variable revenues as determined by a set threshold.
Of note, Great Gaming receives 42.5% of gross gaming revenue for regular limit table games, 40% of gross gaming revenue for certain high limit table games, 77.5% of gross gaming revenue from poker, and 75% of gross gaming revenue from craps.
Revenue sharing agreements no doubt will emerge in the future that may be unfavorable to profitability. Despite e3 billion in gross gaming revenues, Great Gaming only retained $1.18 billion of revenue in 2019, while the Crown corporations took a major 61%.
It is a highly-regulated and strict industry but the company has a strong market position in both British Columbia and Ontario. You can expect revenues should return to normal at the end of 2021. The company has a strong enough financial position to endure through unexpected events.