Jim Hodges has contributed today’s guest post on Century Casinos Inc (NASDAQ:CNTY) using the Socratic method beloved by Soros, Munger, and…er…Socrates:
Century Casinos, Inc. is a new holding for me. Following is a condensed version of how I valued the business’ assets and was able to find the existence of significant value after a margin of safety was applied without the need of adding its positive “owner earnings” year over year.
Much of the value of Century Casinos, Inc. is tangible in the form of Cash and their Property. I first valued their Property by obtaining the most recent Property Assessments of where each of their Properties reside. Incidentally, these Properties are 100% owned by Century.
Property #1: Central City, CO
Market Value: $28,289,378
Assessment Date: 2009
Property #2: Calgary, Alberta, Canada
Market Value in U.S.: $15,366,479.84
Assessment Date: December 26th, 2009
Property #3: Edmonton, Alberta, Canada
Market Value in U.S.: $28,485,487.12
Assessment Date: December 31st, 2009
Property #4: Cripple Creek, CO
Market Value: $7,811,715
Assessment Date: 2009
Total Assessed Market Value Of Properties: $79,953,059.96
At this point, a few questions need to be asked concerning the justification of the Properties values.
Q: How do we know these prices are relevant to the value that could be realized on the open market?
A: A quick scan of various real-estate websites reveal that, in every location of these properties, similar buildings are being offered for sale in excess of their Assessed values and nearly every relative property that sold did so for at least its assessed value.
Note: It would be impossible to make available this information due to its length, therefore I’m leaving it up to the individual investor to come to his own conclusion. The providing of the source is sufficient for you to carry on your research.
Q: What does the Assessed Value include?
A: The structural building and land. It does not include property such as slot machines and gaming tables that are within the casino.
Q: What is not included in this Valuation?
A: Century Casinos, Inc. 33% ownership in a Polish Casino chain. It was nearly impossible for me to value those assets because the Polish commercial real-estate market is not within my circle of competence. However, I did come to the conclusion that the value Century places on their books concerning this property is most likely correct. That value represents an additional $2+ Million. I also did not add the value of the 4 luxury cruise ships in which Century does not directly own the cruise ships itself but does own the rights to have an operating casino on those cruise ships. All of the cruise ships are very similar and I found through discovery that until recently they had operations on 5 cruise ships. They recently sold their rights on one of the cruise ships for more than $1 Million. These items are all “sugar on top of it” and I’ve elected to not include their values regarding this write up for simplicity sake.
Back to the Properties of this discussion:
The four casinos own, collectively, 2,150 Slot Machines. A new casino grade slot machine costs between $9,000 – $12,000 per slot machine. They have a lifespan on average of 7 years before they need to be upgraded, repaired, or completely replaced. On the open market, the average price of a repaired used casino grade slot machine sells for $1,000.
2,150 Slot Machines x $1,000 = $2,150,000
In addition, Century owns all 154 of the slot machines used for their luxury liner casino operations but to keep with my condensed valuation, I am not adding their appraisals to this valuation nor have I included the 90 table games that Century owns.
Property Asset Value: $82,103,059.96
Q: Is the reported Book Value ($88.24 Million)of Century Casinos PPE reliable?
A: It certainly seems so.
Other Assets: Century Casino has $25.49M of Cash on hand ($11.5M not deducted on recent 10-K for the acquisition in Calgary.
Property + Cash Value: $107,595,060
Not taking into account the value of Inventory, Recievables, or any other tangible assets that could be readily liquidated and turned into cash – we can form our decision from this basis alone.
Century Casino currently owes $27.02 Million in Total Liabilities.
$107,595,060 – $27,020,000 = $80,575,060
As of today, April 13th, 2010, Century Casinos, Inc. is selling for $59.52 Million.
Not taking into consideration the excess cash Century generates or the additional asset values, I believe an investment in Century Casino is more than justified.
[Full Disclosure: I do not hold CNTY. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]
Greenbackd 