Positive pointers
2013 results were a tad ahead of our estimates with key metrics – EBITDA and net debt – moving in the right direction. Our profit forecasts are unchanged. Thunderbird Resorts (AMS:TBIRD)is well positioned in its core markets and a combination of selective expansion in high IRR projects and positive underlying gaming cash flows should enable it to continue to reduce debt and finally move into profit from 2015. The 2014e adjusted EV/EBITDA is only 6.1x and the valuation is underpinned by $66m of real estate (net c $1.30 share) with a potential break-up value of over $3/share.
Modest expansion capex offers high potential IRRs
We described Thunderbird’s major restructuring and downsizing process in our initiation report of 2 December 2013. Now that capital constraints have eased, it is beginning a low-risk programme of expansion capex, focusing mainly on new slot parlours and machines and/or expansion of existing facilities in its current markets, which offer potential IRRs of 30%+. A new casino in Costa Rica will open during Q214 and new slot parlours are planned for Peru, where Thunderbird has only a 2% market share and where management has identified a number of promising regions that are currently underserved.
Like-for-like EBITDA up 38% in 2013
On a like-for-like basis and excluding discontinued operations, 2013 revenue increased by 1.8% and normalised EBITDA by 37.7%, with both Peru and Nicaragua performing well. The group remains materially lossmaking, but property EBITDA, corporate costs and interest costs all trended favourably. Net debt has been reduced from $161m in 2009 to $37m in 2013, or $42m including off-balance sheet Costa Rica debt (versus our estimate of $43m) and talks are progressing to refinance the Peru-related debt to improve the principal repayment profile.
Valuation: High-quality underlying assets
We apply the same valuation methodology as published in our initiation report. At the current $0.86 share price the 2014e EV/EBITDA is 8.5x, but adjusting for expected deferred cash receipts reduces this to 6.1x. Our sum-of-the-parts value range is slightly increased, at $1.17-1.86 (previously $1.01-1.70), due to slightly lower forecast debt. Our break-up value is now $2.23-3.33 (previously $2.07-3.07) Thunderbird is well established in its Latin American markets and we continue to see a successful debt refinancing as both necessary and a key catalyst.
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