Donaco International Ltd (ASX: DNA) shares surged out of the blocks on Tuesday after coming out of a trading halt following the purchase of the Star Vegas Resort and Club in Cambodia.
The luxury casino, located on the border between Thailand and Cambodia, serves primarily Thai nationals as Cambodians are not permitted to enter casinos and gambling is illegal in Thailand. The casino, which is located in a special zone that does not require a Cambodian visa to enter, has been purchased for $360 million. The funds sourced from Donaco shares offered to the vendor, cash, a new bank facility, and the issue of new shares to current investors.
Donaco shares surged 28% on Tuesday morning following the successful placement of 154 million shares at 60 cents for A$92.4 million of the A$132 million required. The remaining funds will be raised via a retail entitlement offer that will open on February 9.
Shares on issue will rise from 460 million prior to the acquisition to over 820 million, assuming that the retail entitlement is fully subscribed.
Massive Growth
The purchase could be a huge step forward for the small casino operator as the Star Vegas casino is significantly larger than the group's current casino in Vietnam. Group revenue is expected to rise by 488% to $228.3 million, EBITDA is forecast to improve by 345% to $99.9 million, and net profit by 392% to $80.7 million.
This could see earnings per share increase from 1.7 cents to 9.8 cents, based on 820 million shares outstanding, or a stunningly cheap price-to-earnings ratio of just 7.1. Earnings growth prospects are unknown, as is the opportunity for dividends in the future, but Donaco could be set for a strong 12 months.
Competition
The major risk for Donaco is the company's lack of experience in the country and competition from the other eight casinos in the city and 50 casinos in the country. The existing owner will stay on for two years to manage the property and maintain relationships with the respective governments, however Donaco will be on its own after that time.
