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Non-Tech : Lake City Gaming: LCG-V -- Ignore unavailable to you. Want to Upgrade?

To: Bob V who wrote (118)	7/1/1999 11:10:00 PM
From: Pianoman1997	Read Replies (1) \| Respond to of 124

From Mcdermid LAKE CITY GAMING (LCG-V, $3.74) – BUY SCOT ATKINSON, CFA (604) 659-8225 Penticton Casino Gets the Green Light Lake City has received final approvals from the BC Lottery Corporation (BCLC) and the provincial government to go ahead with the establishment of a casino in the city of Penticton, British Columbia. Construction of this new casino, which was approved in principle in August 1998, has started and we anticipate an opening in May, 2000. The casino will be an addition to The Penticton Lakeside Resort, a 200+ room hotel located on the beach front of Lake Okanagan. As stated in our initial report dated December 8, 1998, this site has the potential to add up to $0.18 to EPS on an annual basis. Earlier this week, the New Democratic Party provincial government made an announcement that there would be no further expansion of gambling in BC. Lake City's Penticton site was one of the few locations pre-approved to go ahead. The government's announcement is both good news and bad news for Lake City. With a moratorium on new casinos in BC, Lake City will have limited competition and the Company's premier casino locations will be that much more attractive as destinations for tourists and bus tour operators. However, the opportunities for Lake City to grow within BC are now restricted to acquisitions of existing casinos. Although Lake City has aspirations of expanding outside of BC, we believe this will be a significant challenge and we have not yet factored this potential into our estimates. The BCLC has also amended its agreement with Lake City to place constraints on the ownership of shares in the Company. Going forward, no investor will be able to own more than 10% of the outstanding shares without prior consent of the BCLC. In addition, an owner who does own more than 10% will not be able to trade an aggregate block of shares exceeding 1% of the issued capital without prior consent of the BCLC. In a related announcement, the pending agency agreement to allow Fred Glasgow, Lake City's majority shareholder, the right to sell 7,000,000 shares did not receive the required government approvals and the agreement will expire. We view this as a negative announcement because we believe the sale would have enhanced liquidity and removed majority voting control but we are not overly concerned. Any future sale by Mr. Glasgow is subject to the amended share ownership constraints. Additional employee training costs at the new Kelowna facility should impact the current fiscal fourth quarter and we estimate EPS for the fiscal year ending June 30, 1999 to come in around $0.29. With the delay in the startup of the Penticton site (we originally anticipated Penticton would open in December, 1999), we now expect F2000 EPS to be $0.46. In F2001, with all four casinos fully operational, we believe Lake City has the earnings power to generate EPS of $0.65. Our 12-month target for Lake City shares remains $5.00, providing a return of more than 33% from current levels. Without factoring in any additional expansion, our longer term target is $6.50 based on F2001 EPS of $0.65 and we rate Lake City shares a BUY.