The work crews are putting the finishing touches on the new Washington Nationals' stadium for the 2008 season, and the lines at the concession stands are sure to be long on opening day. The housing, stock and credit markets may be struggling, but attendance at America's game is booming. Seems folks will give up much in the way of big ticket purchase items in the first half of 2008, but not their baseball tickets.
We got into Centerplate (CVP) back in February 2006, at just under $13, and sold it in November 2007, for just over $16. In the process we booked a 32%-plus total return, including dividends, during that holding period. Today, the units are trading at just under $11, sporting a current yield of 14.2% -- and business is only getting better. Time to get long Centerplate (CVP) again.
Centerplate is a leading provider of food and related services, including concessions, catering and merchandise services in more than 125 sports facilities, convention centers and other entertainment venues throughout the United States and Canada.
Speculation has been swirling around Centerplate that the company might lose the New York Yankees contract that is due to expire after the 2008 MLB season. That contract made up 9.6% of Centerplate's revenues for 2006, so it was worth consideration.
To date, there is no notice of what the Yankees will do -- renew with Centerplate or self-operate. However, CVP has added $75 million in new contracts during 2007 that will more than compensate for the potential loss of revenue from the Yankees contract -- should that happen.
In addition to the new contracts, Centerplate is also close to winning a contract for the Orange County Convention Center in Orlando, Fla., that could total between $25 million and $30 million.
Centerplate trades as an Income Deposit Security (IDS) and, like our other IDS holdings in New Flyer Industries (NYFIF) and Atlantic Power (ATPWF), we get the benefit of owning a hybrid-income security that pays monthly and that has a bond and stock component built into one unit traded on the NYSE.
Each of the Income Deposit Securities issued by the CVP in its initial public offering in December 2003 is comprised of one share of common stock and a subordinated note. The total monthly payment of 13 cents (U.S.) reflects a cash dividend of 066 cents per share of common stock for the monthly period Dec 20, 2007 to Jan. 19, 2008, and includes an interest payment of 6.4 cents.
In the third quarter of 2007, Centerplate increased sales by $27.2 million or 12.4%, and increased EBITDA by $2.3 million or 9.6%. The primary drivers of this growth in the quarter were strong sales in its Major League Baseball and National Football League facilities. On a year-to-date basis, net sales increased $49.2 million, or about 9%, to $572.3 million.
Fourth-quarter financial results will be out March 8, and per my discussion with the folks at CVP last week, the final quarter of 2007 should show very-strong results since the company had good exposure to the NFL playoff season.
There are four major components to the Centerplate story that make it a unique investment and an opportune holding for our 25% Cash Machine model portfolio.
Take a full 3% position in shares of Centerplate (CVP) and buy it up to $12. The current price of CVP is an extraordinary discount to the potential I believe its business model holds. I further believe that the stock can trade back up to $16 during the next 12 to 18 months, affording us an opportunity to book a 45% gain -- not including dividends. Sweet!
I'll see you Friday with the Weekly Update.
Bryan Perry
Editor The 25% Cash Machine