COVID-19 Outbreak A Major Jolt to Business: Great Canadian Gaming Corporation (TSX: GC) is a leading gaming, entertainment and hospitality company. The company operates through 16,000 slot machines, 575 table games, 71 dining amenities and across more than 500 hotel rooms. The business operates through three segments which are gaming, hospitality and Racetrack, lease & other revenues.

The COVID-19 outbreak took a significant amount of toll on the company’s business, which is reflected in sharp drop in its stock price. Recently, the company informed regarding the temporary halt of gaming facilities on account of the announcements from health authorities on the possible transmission of the COVID-19 virus.

Financial Highlights: For the period ended December 31, 2020, GC reported total revenue of CAD 1,355.6 million, as compared to CAD 1,179.8 million. The increase was driven by solid growth in the gaming segment. Meanwhile, hospitality and racetrack revenues all posted healthy growth and supported the top line. Adjusted EBITDA stood higher at CAD 557.3 million, reflecting a growth of 20% over FY18. The growth was primarily due to higher revenue, which was partly offset by higher operating costs related to business expansions. Adjusted EBITDA margin expanded 160 basis points t o 41.1%. Net earnings from continued operations grew 4% to CAD 244.9 million over FY18, thanks to the higher sales. The company exited the period with a cash balance of CAD 329.7 million, marginally lower than CAD 336.8 million in FY18.

FY19 Financial Highlights (Source: Company Reports)

Stock Recommendation: The stock of GC is quoting at CAD 24.70 with a market capitalization of CAD 1.36 billion. The stock witnessed strong selling pressure in the recent past and is down ~41% and ~51% in the last three months and one year, respectively. The recent price correction was inevitable owing to the nature of the business. All of the company’s 25 facilities are temporarily closed following the COVID-19 pandemic. The suspension of operations is likely to hurt the company’s business in a big way. We prefer to remain on sidelines despite the massive drop in its stock price. We expect near-term challenges to act as a dampener. We believe weak economic outlook and expected increase in unemployment rate is likely to hurt the company’s prospects in the near-term. Hence, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 24.70, as on April 15, 2020 and would like to look for the growth catalyst.

GC Daily Price Chart (Source: Thomson Reuters)

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