Analyst cautious on MBG

Dec 10, 2002 4:57 AM

Robin Farley, chief gaming analyst at UBS Warburg, issued a cautionary word following the release by Mandalay Resorts Group Inc. (MBG) of the company’s third quarter results.

The company said third quarter earnings per share amounted to $0.50 or equal to the lowered projections released in late November. During the same period last year, the company earned $0.33 a share.

However, Farley warned: "Don’t be misled by earnings per share results that look like Mandalay’s third quarter was in line with the pre-announced range. MBG’s third quarter results would actually be $0.43 - $0.44, 13% below the pre-announced $0.50, if MBG had not changed the depreciable life of the Detroit property." She said her third quarter estimate had been $0.45.

"While it is entirely appropriate to extend the depreciable life of a property that will be open longer than originally expected, that does not take away from the fact that results fell short of investor expectations about earnings on an operating basis," she wrote.

She said the accounting changes do not bode well for next year’s performance.

"We are lowering our revenue per available room expectations, but raising our earnings per share estimates for next year due to lower depreciation and interest expense assumptions. However, this does not change our price target because the accounting change at the Detroit property and lower interest expense do not change our EBITDA valuation," Farley said.