Casino Owner Twin River Rapidly Becoming Hedge Fund Favorite

Posted on: July 5, 2019, 04:00h. 

Last updated on: July 5, 2019, 10:27h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Twin River Worldwide Holdings, Inc. (NYSE:TRWH), the owner of four casinos in three states, became a public company through its acquisition of Dover Downs Gaming & Entertainment, launching an initial public offering (IPO) on the New York Stock Exchange in late March.

Twin River CEO George Papanier. Hedge funds love his company’s stock. (Image: Providence Journal)

In just over three months as a public company, the owner of the Tiverton Casino Hotel in Rhode Island has rapidly gained a following in the hedge fund community. Currently, 10 hedge funds own shares of Twin River, a massive amount for a $1.22 billion company that does not have two full quarters of trading under its belt.

Led by Solus Alternative Asset Management, eight of the 10 largest shareholders in Twin River are hedge funds. The gaming industry is familiar territory for hedge funds and a slew of publicly traded casino and race track operators are owned by these investment vehicles. But as a percentage of overall institutional investors involved in the stock, the hedge fund presence in Twin River is high when measured against gaming companies of roughly comparable size.

For example, Penn National Gaming Inc. (NASDAQ:PENN), a $2.22 billion company, has just a few hedge funds among its top 10 professional investors. Boyd Gaming Corp. (NASDAQ:BYD), which has a $3.16 billion market value, has just two hedge funds among its 10 largest shareholders.

Bucking Rookie Trends

A possible reason some smart money investors may be fond of TRWH is the company’s penchant for doing things newly public firms, particularly those classified as small-cap stocks, rarely do. For example, the owner of the Hard Rock Hotel & Casino in Biloxi, Mississippi said last month it will spend up to $250 million on buybacks and dividends.

That announcement was made after Rhode Island-based TRWH had been public just over two months. The company said it will pay a dividend of 10 cents a share per quarter.

With 41.88 million shares outstanding the stock trading just over $29 as of the July 3 close, a repurchase program that could potentially top $200 million means Twin River could significantly reduce the amount of freely floating stock, thereby boosting its earnings per share.

Another reason the pros may like TRWH is robust cash flow expectations. At least one analyst believes the casino operator could generate $104 million in free cash flow next year and that half of that could be used to raise the dividend.

A Rhode Island Monopoly

Twin River owns the only two casinos in the Ocean State, giving it a competitive advantage there. While a new regional threat is emerging in the form of Wynn’s recently opened Encore Boston Harbor, TRWH has some avenues for stemming the rivalry, including a different target demographic and legalized sports betting.

To date, sports wagering in Rhode Island has fallen short of expectations, but gaming analysts believe that if the state can start executing on par with New Jersey or Pennsylvania, that could be a major catalyst for shares of Twin River.

While shares of TRWH have lost 2.60 percent since the March IPO, there has not been large selling by professional investors. In fact, two hedge funds – Farmstead Capital Management and the aforementioned Solus – allocate over 30 percent of their total portfolios to the stock.