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PENN, sharp sales recovery but lots of debt
🎯 🎰 📉 USD62.78
Last 12 months cashflow +USD106m ⬆️
September 22nd, 2020
⏰ 1 minute read
⏰ 1 minute read
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Sales
Sales fell by -77% in the 2Q after -13% in the 1Q as casinos shut down. Gaming revenue was down -82% while sales from hotel & F&B was negative -82%. Almost all the casinos have now reopened, so we assume sales will rise back up from this 2Q USD305m to USD1,126m in 2Q 2021, that’s back above this 1Q again.
Cashflow
With lower sales, cashflow was also a bigger negative -USD110m after -USD93m in the 1Q, both excluding working capital. This is despite much lower investment spending in the 2Q. The last 12 months quarterly average cashflow is +USD106m. With still low investment spending & our forecast sales recovery, we expect a quarterly average cashflow +USD92m in this next 12 months.
Sales fell by -77% in the 2Q after -13% in the 1Q as casinos shut down. Gaming revenue was down -82% while sales from hotel & F&B was negative -82%. Almost all the casinos have now reopened, so we assume sales will rise back up from this 2Q USD305m to USD1,126m in 2Q 2021, that’s back above this 1Q again.
Cashflow
With lower sales, cashflow was also a bigger negative -USD110m after -USD93m in the 1Q, both excluding working capital. This is despite much lower investment spending in the 2Q. The last 12 months quarterly average cashflow is +USD106m. With still low investment spending & our forecast sales recovery, we expect a quarterly average cashflow +USD92m in this next 12 months.
Sharp sales recovery, lower investment, positive cashflow & capital payout, but high debt, lower target price...
Balance sheet
Because of the higher investment spending back in 2017 & 2018, the balance sheet net debt has expanded from USD4.7bn in early 2017 to USD10.6bn as of this 2Q. With our forecast positive cashflow & a small USD16m equity payout (we predict a profit from 1Q next year), then the net debt will decline to USD10.27bn in 12 months time.
Profit
The 2Q loss improved from the 1Q to -USD214m because of less non cash costs. But the cash cost ratio of net profit add back depreciation & other non cash minus sales as a % of sales was at 125%. We assume a return to 82% as sales now recover which is a lower loss of -USD40m, profit from 1Q.
Value
PENN has raised UDD2.1bn in the last few years, but will start to pay back as sales now recover. At USD9.9bn, it’s trading at 3.27x sales, 0.71x assets, 6.84x equity with no profitability & a forecast 0.2% yield. Our cashflow forecast is USD367m. At 1.6% with a 0.4x adjustment because of the high debt, gives a lower target price, USD62.78.
Because of the higher investment spending back in 2017 & 2018, the balance sheet net debt has expanded from USD4.7bn in early 2017 to USD10.6bn as of this 2Q. With our forecast positive cashflow & a small USD16m equity payout (we predict a profit from 1Q next year), then the net debt will decline to USD10.27bn in 12 months time.
Profit
The 2Q loss improved from the 1Q to -USD214m because of less non cash costs. But the cash cost ratio of net profit add back depreciation & other non cash minus sales as a % of sales was at 125%. We assume a return to 82% as sales now recover which is a lower loss of -USD40m, profit from 1Q.
Value
PENN has raised UDD2.1bn in the last few years, but will start to pay back as sales now recover. At USD9.9bn, it’s trading at 3.27x sales, 0.71x assets, 6.84x equity with no profitability & a forecast 0.2% yield. Our cashflow forecast is USD367m. At 1.6% with a 0.4x adjustment because of the high debt, gives a lower target price, USD62.78.
