Gamehost Inc. (TSX:GH) is a small Alberta-based owner and operator of casinos. The company owns three properties in Calgary, Grande Prairie, and Fort McMurray. The Calgary and Grande Prairie locations each have hotels attached, which have a total of 310 rooms.
Shares plummeted in May 2016 after the company’s Fort McMurray location was threatened by the wildfires that ravaged the city. The building managed to escape major damage, but it was still shut down for several weeks.
This naturally impacted earnings, and management responded by cutting the monthly dividend from 7.33 cents per share to 5.75 cents.
Gamehost managed to deliver earnings of $0.66 per share in 2016. Yes, this was down versus the year before – earnings were $0.82 per share in 2015 – but results were generally stronger than investors anticipated. 2017’s results should recover to approximately the same level as 2015’s.
This is good news for the dividend. Shares currently yield 6.6%, and the distribution exceeded net earnings in 2016. Look for the payout ratio to be approximately 80-90% of earnings in 2017, with a lower payout ratio based on free cash flow. The dividend appears to be safe.
Management believes the current $10.40 share price is undervalued. The company recently announced a share buyback of up to 750,000 shares.
In addition, management continue to have a substantial ownership position in the company. President David Will and Vice-President Darcy Will own more than 35% of outstanding shares, with total insider ownership exceeding 40%.
