Codere is an international gaming company that manages c 57,000 gaming machines, 30,000 bingo seats and 7,600 sports betting terminals across Latin America, Spain and Italy. It was founded in 1980, listed in 2007 and completed a successful debt for equity swap in 2016.
Codere is an established retail gaming operator in Latin America, Spain and Italy. Following macro and financial difficulties, it completed a successful operational and full debt restructuring in 2016. Q119 net debt/adj LTM EBITDA of 3.1x is comfortably within banking covenants. FY18 revenues declined by 10% due to the 75% devaluation of the Argentine peso, but adj EBITDA increased 3.4%, largely due to the new management’s performance initiatives. Barriers to entry are high and future growth should be driven by online, Mexico and Spain. The free float is limited and OTC shares are subject to a restrictive shareholders’ agreement. Positive cash flow is expected in FY19 and the stock trades at a deep discount to peers.
Codere’s key markets are Mexico, Argentina, Italy and Spain and c 80% of EBITDA is from Latin America. Retail slot machines comprise c 78% of revenues; online contributes just 3%. Codere is heavily exposed to currency and emerging market risk, which specifically includes Argentina FX risk. In general, the business model benefits from high barriers to entry and, after meaningful investment, we believe there is significant upside from Mexico and Spain.