Guocoleisure

Guocoleisure: DMG has Buy Call on the co. with $1.25 TP. House note that GuocoLeisure, the listed leisure and hospitality arm of the Guoco Group, is an undervalued gem sitting on a portfolio of cash-generative, hard-to-replace assets. Its key investments are: 1) the Guoman/Thistle hotels, the largest hotel operator in London with over 8000 rooms under management; 2) the Bass Straits Royalty Trust, entitling GLL to a perpetual stream of cashflow from oil and gas production in designated areas in the Bass Straits; 3) 54,000 acres of land in Molokai island, Hawaii, 4) Clermont Leisure, a casino targeted at high rollers.The stock is under-covered and house is the only broker with a rating on the stock. Trading at massive 53% discount to our SOTP valuation. House value GLL using a SOTP methodology to best capture the disparate nature of its various investments. Value its Guoman/Thistle hotel portfolio at EUR250,000 per key for its London hotels, a 21% discount to the average transaction of EUR316,000 per key in 2012. Use NPV to value the cash flow stream from Bass Straits Royalty Trust, without factoring in upside from future reserve growth.