Seven Aces gets bullish new price target from Industrial Alliance

Better than expected quarterly results from Seven Aces (Seven Aces Stock Quote, Chart, News TSXV:ACES) are cause for a target raise from Industrial Alliance Securities analyst Neil Linsdell, who reviewed the details in an update to clients on Tuesday.

Gaming company Seven Aces, which operates exclusively through a 70 per cent stake in Lucky Bucks, a Georgia-based operator and owner of coin operated amusement machines (COAMs), announced its first quarter fiscal 2020 results on Monday, with CEO Manu K. Sekhri calling the Q1 a big step forward for the company.

"We completed the most significant acquisition since the initial investment of the Company in Lucky Bucks, LLC and we brought to a conclusion a successful process to refinance our credit facility on much more attractive terms. When one time items related to these two events are stripped out, we believe that what remains illustrates an impressive performance of the Company's business in Q1,” said Sakhri.

As for the impact of COVID-19 on the company’s business, Seven Aces management said Lucky Bucks has proven to be resilient in the face of the pandemic, with results in the Q1 continuing on into April and May, including May’s revenue coming in “significantly above pre-COVID budgeted numbers,” said Sakhri.

Over the quarter, Seven Aces closed on six acquisitions for a aggregate total of $43.4 million, while the new credit facility came in at $165 million. Subsequent to the quarter’s end, Seven Aces announced the departure of Lucky Bucks founder and CEO Anil Damani after a settlement was reached with the Georgia Lottery Commission after Damani was found to have leased a personal rental property to a person holding a
location license to operate COAMs in Georgia.

On Damani’s stepping down, Linsdell said there should be no lasting operational effects on the company, with Anil to retain his 30 per cent stake in Lucky Bucks and remaining, Linsdell expects, a “strong supporter” of the company.

As to the quarterly numbers, Seven Aces beat Linsdell’s top and bottom line estimates, coming in with revenue up 18 per cent to $23.8 million and adjusted EBITDA up 13 per cent to $9.4 million, compared to Linsdell’s forecasts of $23.1 million and $8.5 million, respectively. (All figures in US dollars except where noted otherwise.)

“ACES’ top line growth is proceeding slightly better than expected,” Linsdell wrote. “We have raised some forecasts, while also adjusting for the one-time impacts related to the debt refinancing and costs of the GLC fine and Anil’s departure. With these adjustments to our forecasts, we are increasing our target price to C$2.40 from C$2.10, using the average of (1) discounted cash flow against the FCF attributable to shareholders, discounted at 10 per cent, and (2) an EV/Adj. EBITDA multiple of 9× applied against
Adj. EBITDA attributable to shareholders, excluding any M&A benefits.”

Looking ahead, Linsdell is calling for Seven Aces to generate fiscal 2020 revenue and adjusted EBITDA of $93.2 million and $31.5 million, respectively. At press time, his C$2.40 target represented a projected 12-month return of 46.3 per cent.