Cirsa - An Underappreciated Gaming Asset - Part 1.0

Thesis & Overview

What is Cirsa?

• Cirsa (private) is one of the largest global omnichannel casino operators in Spain, Italy and Latam. The company was founded by Manuel Lao Herandez in 1978 and was sold to Blackstone for €2.2B (~6x EV/EBITDA) in 2018, with the Argentina business carved out and remained under the control of the Lao family. The company operates 447 casino halls, 36k slots, 654 tables, and 8 online casinos in regulated markets such as Spain, Panama, Colombia (50% JV), Mexico, and Italy. The company is currently contemplating an IPO plan to list on the Madrid stock exchange with net proceeds rumored to be used for deleveraging (3.9x/4.4 OpCo/Total Consolidated Net-Leverage as of 4Q24)

Our Thesis

1. Cirsa is a market leader in digital gaming in Spain, and expansion in Latam should position the company for further growth

2. Land-based casino and slot business in Europe will provide sufficient FCF needed to grow in Latam

3. Land-based casino/slots operations in Latam provide multiple touchpoints to build a customer database and acquire customers at an attractive ROI

   
   

Valuation

• Our SOTP suggests the Company is worth 7.0x EV/EBITDA. Valuating the land base operations at a blended 6.5x while we applied a 10x multiple on the digital business

  
  

Risk

1. Value-destructive M&A

2. Changing regulatory environment in Latam/Europe

3. Weak consumer demand due to the Trade War

4. Heightened competition in digital gaming from better-capitalized global and local competitors

   
   

The TLDR: We like Cirsa given its leading online gaming position in Spain. We believe the company is wellpositioned to compete in Latam as it can leverage its existing slots hall and casinos to further penetrate the online gaming segment

Valuation – Sum of the Parts

Overview

• While Cirsa is currently a private company, the following SOTP analysis provides a framework to estimate the potential equity valuation necessary to achieve a minimum return for Blackstone. For this exercise, we assume a minimum IRR of 15%

  
  

• IPO and Rumor Valuation. According to market chatters, Blackstone is considering an IPO for Cirsa, potentially selling 20-25% of its stake for €745m - 1.1B. The rumored valuation implies an enterprise value of ~9x EV/EBITDA

  
  

  

  
  

• What is Fair Value?

  • We believe the fair valuation for the business is a blended 7.0x EV/EBITDA using our SOTP analysis.

    • Casino Business. We assign a multiple of 7.0x on the land base business, reflecting its strong EBITDA growth potential, exposure to emerging markets (Colombia, Panama, Mexico), but offset by elevated regulatory risk (e.g Mexican govt’s attempt to ban land base casino in 2023). For context, US landbase peers trades at 7-8x.

    • Digital. We valued the digital business at a 10x multiple. We believe the digital business is well positioned as Sportium is likely the leading digital player in Spain. However, Spain is a mature market and the next leg of growth will be dependent on aggressive expansion in Latam, which has yet to be proven successful. For reference, DKNG and FLUT both trades at mid-high teens in the US.

    • Slots. Given elevated taxes and difficult operating environment in Italy, we ascribe a low 3.0x multiple on that business. Spain slots, on the other hand, continues to be good cash generation segment, albeit in a mature market. We believe a ~6x multiple is a fair valuation.

• Sensitivity Analysis.

  • The primary valuation debates center on ascribing the appropriate multiples for Casino and Digital businesses. Per our sensitivity analysis, we believe Blackstone can achieve its 15% IRR target assuming the casino gets valued at a minimum of a 6.0x multiple.

Separately, if 20% of IPO proceeds are allocated to debt reduction, IRR could increase by 4-5%. That said, we think a dividend payout is a more likely given low coupon on SSNs