Investors sell off Twin River stock as Boston casino bites

Twin River, which went public earlier this year after a merger with Delaware-based Dover Downs, saw its shares drop in New York Stock Exchange trading from $23.40 on Friday to $20.65 at Monday’s market close, a decline of over 11%. The stock made up some ground Tuesday amid a broader market rally, but had only recovered to $21.12 as of 12:15 p.m.

Traders have pounded Twin River for multiple months now: the company’s stock is down 36% since it peaked at $33.40 on April 12, shortly after it first began trading in New York.

Twin River spokesperson Patti Doyle dismissed the market moves, which come as the company is waging a public battle locally to torpedo IGT’s proposed 20-year no-bid contract extension to run Rhode Island’s lottery and casino technology.

Asked Monday night for comment on the stock price, Doyle replied, “Nothing of concern.”

The selloff followed Twin River’s Monday announcement that its net profit fell 15% in the three months ended June 30, to $17 million, despite a 29% spike in revenue driven largely by its acquisition of Dover Downs.

The company said while the Delaware operation’s performance has exceeded expectations so far, its Rhode Island casinos in Lincoln and Tiverton have experienced “softness,” partly driven by bettors receiving smaller tax refund checks but also by Wynn Resorts opening its Encore casino in late June.

In an effort to get ahead of the bad news, Twin River President and CEO George Papanier gave investors a preview of the current quarter, warning that the Boston casino was taking a clear bite out of its business. The company is cutting its 2019 operating profit forecast for the Lincoln and Tiverton casinos by 10% as a result.

In July, the Encore’s first full month of operation, Twin River’s table games revenue in Lincoln slumped 34% and net slots revenue fell 17%, he said.
“The new competition had a greater than expected negative impact on our table games at Lincoln in July 2019, while our slots performance for the same period was in line with expectations given the seasonal weakness that we noted earlier,” Papanier said in a statement.

Papanier elaborated during a call with investors, according to a transcript. In the past when new competitors have opened, he said, “I’ve seen a defined trial period, and that’s typically followed by a bounce-back, which gets you closer to over historical top-line trends for your property.”

“We’re clearly experiencing a prolonged trial period,” he said of the Encore casino. “I think that’s been facilitated by nicer weather patterns this summer to some degree in the Northeast, which actually helps to reduce normal traffic disruptions that we were expecting to see around Boston.”

The decline in table games revenue since Encore opened has remained “consistent” at a drop of roughly 25% to roughly 35%, he said, “and it seems to be the customers that are in the Boston market as opposed to customers that are in our Providence market.” He also acknowledged Twin River has “yet to see the return of the majority of the customers” who have tried Encore.
The earnings report led the investment bank Stifel, Nicolaus & Co. to slash its one-year price target for Twin River shares from $43 to $29. “Call us crazy, but we are sticking with our Buy rating,” Stifel’s analysts, Brad Boyer and Steven Wieczynski, wrote in a note to investors.

The analysts suggested Twin River executives’ reduced outlook for its Rhode Island operations in 2019 “could prove overly conservative, as Lincoln’s competitive advantages, namely its proximity to a significant portion of its player database, begin to factor in more prominently in the fall.”

They also urged Twin River’s leaders to begin buying back shares aggressively to “stop some of the bleeding in the stock price,” warning it appears that “some of [Twin River Worldwide’s] legacy shareholders are comfortable selling the stock with no regard for the share price.”

The revenue declines could have a ripple effect on Rhode Island’s state budget: Twin River is supposed to contribute $309.5 million from video lottery terminals and $19.9 million from table games to the state’s general fund in the 2019-20 fiscal year, which began July 1.

On sports betting, Papanier said Twin River does not see the new offering as “a game changer.” He continued, “It’s certainly an amenity that you have to have. It’d be more interesting in bigger markets, but Rhode Island is not a really big market as it relates to that.”

Twin River disclosed $700 million in outstanding debt against $383 million in cash and cash equivalents following a recent refinancing. Steve Capp, the company’s chief financial officer, called it “a rock solid balance sheet.”

In discussing the IGT deal, Papanier said the company is continuing to encourage lawmakers to reject the proposal. He cited data the company has provided before – contested by IGT – suggesting IGT’s games perform worse on the casino floors than those provided by its competitors.

“We feel the ability to work with the state as operator to manage our gaming floor and ensure the best product mix on the casino floor will result in increased revenue for both the state and Twin River,” Papainer said. “We will continue to oppose this deal and have engaged in initial discussions to form a consortium of technology providers to compete should a competitive bid process occur.”

Separately on Tuesday, House Speaker Nicholas Mattiello and Senate President Dominick Ruggerio sent a joint letter to Gov. Gina Raimondo requesting that she provide additional documents related to the IGT deal by Aug. 30 so they can prepare to hold hearings on it.

Their requests include a copy of the proposed contract or all terms of the governor’s agreement in principle with IGT; a copy of the current 20-year contract with IGT, including any amendments; detailed information on the company’s fulfillment of its existing 1,000-job requirement; data used by the firm Appleseed for its economic impact study; and a list of all experts involved, as well as any related documents they created.

“We are committed to properly vetting this legislation by way of public hearings to determine the appropriateness of forgoing the normal public bid process for a contract of this length, scope and magnitude,” the two Assembly leaders wrote in their letter.