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A sign for the River Rock Casino in Richmond, B.C. is photographed on Dec. 5, 2017.Ben Nelms

Analysts are increasing their bets on the share performance of Great Canadian Gaming Corp. after the casino operator reported first-quarter results that blew past expectations and was set to churn out more cash from new operations in the Greater Toronto Area.

Shares of the Coquitlam, B.C.-based company – which runs 28 gaming, entertainment and hospitality operations in British Columbia, Ontario, New Brunswick, Nova Scotia and Washington State – are up more than 35 per cent since it reportedfirst-quarter revenue rose 62 per cent over the same quarter last year to $230.5-million. Analysts were expecting revenue of about $148-million.

Earnings before interest, taxes, depreciation and amortization (EBIDTA) attributable to the company came in at $67.4-million, analysts said, well ahead of expectations of about $52-million. The latest results were driven by 68 days of revenue from three new operations in the Toronto area – Casino Woodbine, Casino Ajax and Great Blue Heron Casino – known as the “GTA Bundle.” The company bought a 49-per-stake in those operations alongside Brookfield Business Partners LP, with Clairvest Group Inc. holding the other 2 per cent.

(Some claim Great Canadian picked up those assets at rock-bottom prices from the government.)

Still, the surprising results led some analysts to hike their 12-month price target by as much as 40 per cent.

“They’ve caught the investment community off guard,” said Ryan Modesto, chief executive of independent research company 5i Research, who likes the stock and expects it to go higher. Mr. Modesto pointed to its valuation of about 16 times forward earnings and nine times forward EBITDA, “which is pretty cheap for a company that’s growing” and considering its long-term government contracts of 20-plus years to operate the casinos.

Among five analysts who cover the stock, three have a buy recommendation and two a hold, with target prices ranging between $37 and $61, according to Bloomberg. The average target price is $51.80, about 3 per cent above its current price of about $50.25 on the Toronto Stock Exchange. The stock hit a record high of $53.35 on May 15, the day after the U.S. Supreme Court cleared the way for U.S. states to legalize sports betting on individual games. Great Canadian has four casinos in Washington State, which accounted for about 7 per cent of its annual revenue last year.

The company declined an interview request, but CEO Rod Baker said on an investor call on May 10 that its recent acquisitions in Ontario “mark a significant milestone for the company.”

The company closed its $170-million deal for the GTA Bundle in January and this month closed another, $134-million deal with Clairvest to purchase and run four more Ontario casinos, known as the “West GTA Bundle”: Elements Casino Brantford, Elements Casino Flamboro, Elements Casino Grand River and Elements Casino Mohawk. Great Canadian owns 55 per cent and Clairvest 45 per cent of the venture.

“We expect continued growth at GC’s legacy operations, combined with contribution from the GTA and West GTA gaming bundles to drive meaningful revenue and earnings growth through and beyond our forecast horizon,” RBC Dominion Securities analyst Sabahat Khan said in a recent note, in which he reiterated his “outperform” (similar to buy) rating on the stock and increased his target to $61 from $45.

Canaccord Genuity analyst Derek Dley hiked his target price to $55 from $41 and maintained his buy rating after the “very strong” first-quarter earnings results. He said in a note that the new Ontario operations will allow the company to “meaningfully increase its earnings potential.”

TD Securities analyst Damir Gunja upgraded the stock to buy from hold and increased his target to $54 from $39, adding in a note that he was “surprised by the EBITDA generated at the [Ontario] properties” and, given that it was a seasonally slow gaming quarter and early days in the ownership, “these EBITDA numbers could even potentially be conservative.”

Scotia Capital analyst George Doumet maintained a “sector perform” (similar to hold) on the stock, but his target price rose to $52 from $37. “While we acknowledge that the GTA and West GTA bundles could be a meaningful contributor to earnings, we continue to have limited visibility on the size and timing of capital deployment, and expect the majority of the EBITDA contribution to occur in the outer years,” Mr. Doumet wrote in a note.

He also cited a “near-term risk to revenues” in B.C. owing to new policy initiatives, as well as competition from other casino operators.

Great Canadian reported a decline in “table drop” – the money customers pay to purchase casino chips – at the River Rock Casino Resort and Hard Rock Casino Vancouver in its latest quarter, the result of new procedures imposed by the B.C. Lottery Commission for casino buy-ins of more than $10,000. Analysts also expect more anti-money laundering regulations to come.

Other risks include labour disruptions in B.C. and an economic downturn that could see fewer people at the poker tables.

Bruce Campbell, portfolio manager at StoneCastle Investment Management, has been following Great Canadian since it announced its first Ontario deal late last summer – and has been kicking himself for not buying in back then.

“We try not to look at it very often because we’ll just start to cry,” he said in jest. He’s not sure whether to buy in at this stage. “We’re in that uncomfortable no-man’s land now,” he said. “It has gone up so much. What do we do? It looks great, but we don’t want to chase it either.”

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