Olympic Entertainment Group (OEG) operates casinos in the Baltic region (Estonia, Latvia and Lithuania), Poland, Slovakia, Belarus, Italy and Malta. Over the last decade OEG grew to one of the largest European casino operators mostly by acquiring smaller competitors in existing markets or by establishing joint ventures in new markets. I started to invest in the company at the beginning of 2014 and increased my position at the end of last year.
The company has a market cap of EUR 290 m and net cash of EUR 32 m. Not included in net cash are non-cancellable leases of roughly EUR 25 m for the rental of the company’s casinos. Over the last five years OEG generated stable upward trending profits from operations:
Currently, the company is trading for 12 times net profit (adjusted for minority interest) and 2.5 times book value.
Starting in 2013, OEG has since then allocated substantial capital to grow the business. In my last post, I outlined the three parts of this expansion programme including the Hilton Tallinn Park Hotel to open in May 2016, Casino Malta which opened at the beginning of this year and a number of ongoing roll-ups in existing markets.
The following table provides an overview of last five year’s investment activity:
Investments were entirely financed by operating cash flow and exceeded depreciation & amortization to a large degree. With the completion of most of the investment activity, shareholders can expect revenues to grow further this year and profits should follow sooner than later.
Of course, there are risks attached to this investment which I referred to in my last two posts about the company. I also outlined that OEG faced some difficulties in the past.
Still, I believe that the market substantially undervalues this company. I will therefore further increase my position by 100 bps with a share price limit of EUR 2.0 from today on.
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