Following my last article on what to do with a skyrocketing stock I’ve followed Lakes entertainement developments to ensure my evaluation of the company still holds its ground.
Evitts
While Evitts resorts was scaled down, it should open earlier (summer 2013). The financing was performed “in-house” and Lakes seems on plan and on budget. But as for any construction project, you’re always on budget until you’re not anymore (see Fortress Paper reference in this blog). The original 27M tax estimates building up to 60-70M EBITDA is now a little bull. Anyhow, in my original estimates I included 27M EBITDA and I’ll keep to it. We’re still guessing anyhow.
Rock Ohio Ventures
Cleveland casino is in operation for almost a year now. But Lakes investment in ROV have not been revaluated. We still need to guess its value but we are not paying the taxes neither. Anyhow, I’ve went throught the financials of Ceasars to obtain the estimated casino revenue for the Cleveland casino. I could not get it split down to one casino but the “increase in management fees” for the category “ohio” is mostly due to management fees related to this new casino. For the period from May to December 2012, Ceasar got 50M increase in management fee revenues. Assuming 25-30% of EBITDA in management fees, we could track back the profit of Cleveland casino at 166 to 200M for 8 months or 250M to 300M for 12 months. While we must get the 25% management fee out of the profits, we are still in the range of 200 to 240M profit higher than the original estimate of EBITDA.
I assume the brand new casino opened in march, find it here, will get the same return (around 200 EBITDA) even if we target under the actual first 8 months performance.
I will forget about the racetrack which is included in the partnership as I do not even know if it is profitable. Althought this probably have alot of value to.
Jamul Tribes
While I thought Jamul Tribes receivables were lost, but yesterday Penn national made a deal with Jamul and Lakes restating the debt at 60M and carrying a 4.85% interest rate and must be repaid as soon as the new casino opens! That is great news! Moreover, lands that Lakes own are next to the new casino and Penn took an option to buy those at 7M$. So it is turning assets I thought lost to 67M$ cash in the next years!
Valuation
So here we go on a valuation of 10 times EBITDA
Rock Ohio
Cleveland 200M * 80% * 10% * 10 = 160M
Cincinnati 200M * 80% * 10% * 10 = 160M
Evitts
Hotel 1M * 10 = 10M
Casino 27M * 10 = 270M
Balance sheet items
Cash 6M
Jamul + lands 67M
Totals up to 673M value for a market cap of 88M + 47M debt or 135M market cap.
As far as I know, only the valuation of the “partnership” is included in the market cap at more than 50% discount.
Disclosure : Author is long LACO.
Pretoria Investment 
Hi there,
What’s the exact role of Pretoria Investment? Is it an investment company? A broker? Money manager?
Hi,
It is my personnal investment company and a blog name.
Regards