Evergreen Gaming

I’ve been meaning to really look at Evergreen Gaming for a while. It looked cheap enough superficially, but between a few other opportunities, and the gradual deleveraging I’ve been trying to do, I hadn’t felt the need to do a very deep dive on Evergreen (TNA).

But a reader asked me about it, and it snowed approximately a foot here last weekend, so I had some time and finally got around to looking closer.


Evergreen Gaming Corporation operates four casinos in Washington state. The casinos seem to only offer card tables and pull-tabs, which appear to be the same thing as the lottery tickets of the same name. So the casinos can’t quite be compared apples to apples with casinos which have slot machines.


Evergreen is quite profitable. Through nine months of 2017, Evergreen had earnings of $2 million. Annualized, these results would equal about 2.1 cents per share, meaning Evergreen is trading at just 8x P/E. Both revenue and earnings are up year over year, despite having shut down a casino in February 2017.

Palace Tukwila

The company just recently completed the sale of a full casino, The Palace Tukwila, which was realized to be either unprofitable or untenable in some way. According to the Q3 MD&A:

The Company did operate a fifth casino, the Palace Casino in Tukwila, but that property was closed on February 4, 2017. The Company has entered into an agreement to sell the real property where Palace Tukwila was located for $1,950,000. The buyer has made a $50,000 earnest money deposit and the sale is supposed to close on or before November 30, 2017.

The property was sold for almost $900,000 more than the mortgage balance and $515,816 over its value on the balance sheet. This indicates to me that we can consider the rest of the balance sheet conservative.

Excluding goodwill completely (not necessarily fair, but works as a margin of safety) and including the Tukwila sale, book value is $0.08 per share. On book value then it doesn’t look cheap. But there’s almost $0.06 of unrestricted cash on the balance sheet (there is also restricted cash, which is held in case of a large jackpot).

It’s clear to me that there’s no business reason to be holding this much cash, so it ought to be returned to shareholders in some way. If this guy is to be believed, the chairman’s preference is paying down debt with the possibility of a share buyback in the future. The debt is low interest, with a favourable maturity schedule, so my preference would be the buyback.


I really can’t claim to have any idea of the future prospects of Evergreen, there’s a few balls up in the air and I don’t have a firm grasp in what direction the company will be steered.

As an example of “balls up in the air”, Washington is in the process of increasing its minimum wage significantly in the next few years. The company issued a prediction of how it will affect profitability:

The present minimum wage increased from $9.47 in 2016 to $11.00 in January 2017, and in future years
the wage increases to $11.50 in 2018, $12.00 in 2019 and $13.50/hour in the year 2020. The increases
to the minimum wage will also impact hourly wage rates for employees with greater experience and
responsibility. The cumulative effect on wages, including payroll taxes over the four year period is
projected to be $1,394,000, $2,041,000, $2,690,000, and $4,327,000 respectively.

This is obviously a large hit to a company with less than $3 million of earnings. The good news is that in 2017 the increased earnings already reflect the increased labour costs. It’s more of an economic debate whether the increased minimum wage will lead to higher revenues. For the time being, the company has managed to navigate this hurdle, but it’s an undesirable headwind.

A tailwind that will partly offset the wage hikes will be the corporate tax cut implemented in the US. Through nine months of 2017, the company had set aside 35% of earnings, over $1 million, for income tax. In 2018 the company stands to save ~$400,000 in taxes.

Those don’t quite balance out (the business earns less than if neither happened).  Another thing that has me hesitant on Evergreen is the end game. There are a few paths forward from here that I can see.


I’m not sure how likely Evergreen pursuing a growth strategy is. Dawn Mangano has been the CEO since June, and she has grown a chain of casinos in the past. I also can’t make any guesses at the growth prospects, how many small casinos are available to be acquired or built, or how profitable they would be. For significant market expansion though, this is the path Evergreen will need to take. I don’t want to pretend I know what this growth would look like, or how it would affect the target price of Evergreen, so I’ll just ignore the possibility. Keep in mind that Mangano, may choose to grow the business, and that could offer significant upside.


Insiders own 78% of the stock and I believe the most likely end game for Evergreen is a buyout so the insiders can get their liquidity event. If I were going to buy into Evergreen, it would be in the hope of Evergreen being taken over.

For a rough guess at a buyout multiple, let’s say Evergreen can improve earnings to $3 million annually, which should be close to $4 million EBITDA. I’ll also assume that half of the debt is paid down, and there’s $6 million net cash on the balance sheet. For a sleepy little company like this, I would consider 10x EV/EBITDA to be a fair multiple. A buyout under these circumstances would come to $0.34, 100% upside to today’s price. While the stars look aligned for a buyout offer to come, I don’t want to invest/speculate on it.

Steady As She Goes

There’s also the possibility that Evergreen continues business as usual. I believe the new leadership can extract a lot of value in the short term, hence my prediction that $3 million in earnings isn’t that far down the road. But without any new levers to pull, the growth is capped at a certain point. I’m not sure that Evergreen deserves much more than a 10x P/E multiple once growth slows down; n two years, earning $3 million and growing 5% per year, this would equate to a $0.24 target price.


If I were just looking to buy a basket of undervalued stocks, Evergreen would certainly be in the basket. I’m tempted to buy TNA, as I see the downside as very low. I imagine the customers are pretty sticky, and with the current valuation I’m not sure the share price can reasonably go down much. But I also don’t believe that just because a stock is cheap compared to other stocks that the share price deserves to increase. Evergreen’s business should command a below market multiple, in the absence of any changes (growth strategy, dividend/share buyback, etc). Maybe in today’s market that could be a 12x P/E, indicating more upside, but the margin of safety isn’t enough for me. If I had to bet on the most likely return for shareholders going forward, it would be 5%-10% if a buyout doesn’t happen. I’ll be keeping my eye on TNA, as I have been for a while. I’d probably jump all over it at $0.12, and would maybe start a small position at $0.15.

Disclosure: No position in Evergreen Gaming (TNA)

Integrated Asset Management – Follow Up

Nine months ago I wrote my thesis on Integrated Asset Management, which I thought should be trading at $1.49 on September 30th (end of fiscal 2017). I’m not usually anywhere close to this right, but IAM was $1.54 on September 29th.

Since then however, IAM has traded down to its current $1.38. I made a number of assumptions coming to my 2017 target, as well as my 2018 target of $1.76, with the share price lingering I decided I ought to take another look at these assumptions and make some new targets. Continue reading “Integrated Asset Management – Follow Up”

Spectra Inc.

Trucking is pretty damn dangerous. Anyone in Ontario will likely recall this accident, which killed three and closed the 400 highway southbound lane for over a day. Some of you reading this may have heard of Operation Air Brake, which involve “blitzes” of commercial vehicle inspections, and always ends up taking hundreds or thousands of trucks off the road for brake related violations.

In Toronto, there is a small (and I mean small) company making products that would help prevent many of these violations, which means the truck keeps rolling, the freight gets where it’s going, etc. The value proposition is pretty clear for Spectra Inc.

Luckily for me, Spectra offers an excellent investment opportunity.

spectra inc ssa
Source: http://www.spectraproducts.ca/

Continue reading “Spectra Inc.”

Portfolio Update – December 2017

It’s been a long time since I’ve gotten on here to write about my stocks. No real excuses, just prioritized some other things. I’m sure nobody was really calling the police wondering what happened to me, so I’ll just jump right into this. Let’s start with one where I was very wrong. Continue reading “Portfolio Update – December 2017”

What is Diversified Royalty Corp. Worth?

Diversified Royalty Corp. got their start in late 2014 by buying a royalty on the sales of Franworks restaurants, with the goal of acquiring a diverse portfolio of royalties from multi-location businesses across North America. Diversified was a misnomer until June of 2015, when the company acquired a royalty from Sutton Group Realty. And then in August of that year, the royalty for Mr. Lube Canada was acquired.

At that time the story seemed to be on track. Continue reading “What is Diversified Royalty Corp. Worth?”

Portfolio Update – April 2017

There’s been a lot going on in my portfolio, both with my transactions and news from the company’s themselves. And it’s given me the idea that it might be worthwhile writing up what’s been going on, a so called portfolio update.

This might become a regular thing, or it could be that the past couple weeks are the exception due to annual results and the like, so regular portfolio updates would be boring and unnecessary. Time will tell.



I ended up having to sell Clearwater Seafoods. It hurt because I still think that the company is going to grow well in the future and has very attractive business dynamics. This sale was not due to valuations or any problems with the company. But I saw that the thesis was going to take longer than that of another opportunity, and CLR was trading a few cents under my purchase price, so there weren’t any tax considerations to moving the capital elsewhere. The prudent move was to sell in order to buy another stock. Unfortunately these are the decisions you have to make when you’re fully invested or close to it.



Thanks to one reader to whom I’m very grateful, I recently became aware of Integrated Asset Management. In short, the company has raised a lot of money, but only receives revenue from it when it is invested. This has caused a situation where the company has not received the credit it deserves for the potential fees it will collect shortly. When I wrote my post on it, I came up with a target price of $1.49 by September 30th. In the 5 days since, it traded up to $1.47, and is currently sitting at $1.44. Luckily I got a small buy in at $1.33, but I would have preferred it stayed lower longer so I could accumulate more shares. The current price and dividend still offer a potential 7.6% return in five months, plus my prediction for a 22.8% return next year.

I think the big move up in the last month brings IAM closer to fair value, and an investor will still do well buying at these levels. However the big move up means I think there’s a better opportunity out there short term.


Callidus reported okay results for 2016. Revenue, earnings including unreported yield enhancements, loans receivable, and return on equity were all up. Meanwhile the leverage ratio was down over 10%, which should help reduce fears about investing in leveraged financial companies. The most important part of the release was this regarding the privatization process:

  • Based on the expressions of interest in the first stage, the Process has now moved to its second stage, with a more limited number of parties, which will not exceed six in number. Preliminary discussions with the smaller, second-stage group are focused on both structure and value.
  • Early expressions of interest support initial valuations that would translate into a price received by tendering shareholders that is consistent with the previously disclosed valuation range provided by National Bank Financial ($18 to $22 per share) that accompanied the SIB in April 2016

The process of taking Callidus private remains on track and schedule. Newton Glassman has tempered my expectations a bit, by narrowing the expected tender offer range to $18-$22, but with shares trading today at $17.76, CBL still represents a potential three month return of 3%-25% including the monthly dividend. I was too early at first, originally buying when I wrote my post at a bit over $19. But I added last week at $18. I consider this an excellent place to park cash short term. Worst case (or best case) scenario is you end up with a cheap lender doing everything they can to return money to shareholders and get to hold it longer term. This is a heads I win, tails you lose situation.

Lending Loop

I continue to deposit small amounts of money into my Lending Loop account. It’s pretty fun actually, and my account has a gross yield of 13.3% across a fairly diversified portfolio of loans. This should offer an after tax return of ~9.5% if all loans pay off. If I suffer some defaults I would still expect an after tax return over 6%-7%. This is a very small part of my portfolio, and I’m happy to sacrifice some marginal extra return for the fun of it and to support Canadian small businesses (both Lending Loop and the businesses to which I lend).


Now for some quick updates with the companies in my portfolio and about which I’ve written.


Steady as she goes here. Diversified Royalty Corp continues to have lots of cash and pay out more than it earns from royalties while they look for another royalty stream to purchase. The good news is that the Mr. Lube royalty continues to look incredible. Mr. Lube had same stores sales growth of 4.9% in 2016, and combined with the 2% effective SSSG of Sutton Group Realty Services, meant the DIV portfolio had a combined SSSG of 4.3% for the year. DIV is now out from under the Alberta cloud by selling their royalty stream from Franworks Restaurants. I believe that as soon as Diversified purchases another royalty stream the stock price should pop. Having sold Franworks, and the legal troubles of the old CEO behind them, the focus is now entirely on purchasing more royalties. Management’s current success should give anyone confidence that they’ll make an excellent investment.


My investment in BCE continues to bore me, and I love it. BCE raised their dividend 5.1%, while free cash flow increased 7.6%. Bell Let’s Talk was another huge success. BCE under performed the TSX and TSX telecoms index in 2016, but the real test of Bell’s inclusion in the portfolio will come during a market downturn. Until such a time, it will be a small holding I pay next to no attention to while I DRIP the very generous dividends it pays out.


These Dundee preferred shares remain undervalued. It’s not as attractive as it was under $9 at the start of 2016, but there’s still the 8% dividend while you wait for the price to reflect the safety of the preferred. This Globe & Mail article states there’s still some room to run for preferred shares, but investors may have to dig deeper for the best values. If they dig deep enough, they’ll find DC.PR.D and the price should rise. Even trading up to a 7% yield, which is still among the highest of preferred shares on the market, would lead to a share price of $16.22.

The Dundee business itself is terrible (but undervalued!), but still make plenty of cash to pay the dividend on the preferreds.


By far my largest holding. Funds from operations increased by 27.7%, but shares trade at just 11.5x P/FFO right now. Fee bearing capital increased over 16% continuing a trend of strong growth with no sign of stopping. Brookfield is constantly in the news for aking large purchases and investments. As long as Bruce Flatt is CEO, and probably for long after that even, I plan to never sell a share and continue to buy when I see a dip.


I hold this based on the returns of the other Brookfield spinoffs. BAM.A has an incentive for BBU to perform well, and every other spinoff has performed excellently. That said I can’t speak to it’s valuation here. It acquired a water utility in Brazil and a road fuel provider in the UK. This one will depend smart acquisitions, which I trust will continue.


Remains undervalued. Pays a 4% yield with a 82% payout ratio, and the distribution was increased 5.4%. Has some of the highest quality real estate all around the world. Funds from operations increased 15% YOY, and BPY.UN currently trades at 16.8x P/FFO. NAV is somewhere north of $37, so shares trade at a deep discount to book value despite the high quality management and assets.


Enercare has kept growing, just like normal. But ECI had a big pop recently because investors got outside confirmation of a takeout valuation. One of Enercare’s peers, Reliance Home Comfort, was purchased by Victor Li for $2.8 billion. TD estimates that if Enercare were bought out at a similar EV/EBITDA valuation it would garner a purchase price of $29-$32 per share. I however hope Enercare continues to operate independently for years, growing the share price and dividend indefinitely.


Stella-Jones is still a great company temporarily beaten down by short term weakness in their core businesses. Stella-Jones will overcome this, possibly making accretive investments of companies with weaker balance sheets, and shares will be much higher in the future. Stella-Jones is a stronger company than Clearwater, and is a much bigger position for me, so it is very unlikely I ever sell it to fund a different stock purchase, even if I think SJ may not move much in the short term.

Stocks I didn’t buy but should have

  • Park Lawn Corp was $16.63 when I wrote about them one month ago. Then their full year results came out and revenue more than doubled and net earnings per share increased 83%. It now sits at $17.50.
  • Perlite Canada was 25 cents when I wrote about it three weeks ago. Then they reported revenues up 27% and a profit in Q1, big improvements over the first quarter of their record 2016. Shares are now at 34.5 cents. I wrote the damn article saying I should have trusts my gut the first time I studied PCI. Then I used my stupid head and thought good results couldn’t push the stock much past 30 cents. Lesson learned – I’m an idiot.


The first two months of this blog have been pretty eventful for my portfolio, and writing my research unfortunately publicizes my poor decisions like passing on Perlite Canada and Park Lawn Corp. But my portfolio remains strong and I’m happy with my holdings after some minor shuffling and investing into some good opportunities like Integrated Asset Management.

The First One

Hello, I’m sure you are waiting to find out what this is. Here we go!

I’ll start with a little about me. By day, I’m just a mild mannered man who spends a lot of time thinking about stocks. By night however, I’m a mild mannered man who thinks even more about stocks. Contrary to popular opinion, this makes me both fun and mysterious, trust me.  I love thinking about any and all of the following: P/E’s of 3, management teams that own a lot of stock in their company and buy back lots of stock, Bruce Flatt, The Intelligent Investor, Joel Greenblatt, the funny sounding term GARP,  turn around stories, free cash flow, etc. Told you I was fun.

As part of this thinking, I often write down my thoughts about the stocks I research. I also do a lot of searching out ideas for new stocks to research. And during the course of looking for new ideas I noticed there are very few sites offering up ideas for a Canadian investor like me. My habit of writing my thoughts on stocks and the lack of Canadian investing blogs (Divestor and Financial Uproar are all that’s really out there, and they’re both great) made me think it’s a hell of idea for me to start an investing blog.

I will be writing about stocks I believe are undervalued, overvalued, and everywhere in between. Hopefully this blog becomes a place you, the dashing reader, can come to find investment ideas, or learn a bit about how to analyze stocks. If you close this window having learned anything about investing I will consider it a success.