Minneapolis horseracing, casino, and real estate. Merry Christmas.

Certain investors will buy cigarette butts to buy a tail of a royalty stream at advantageous prices. One could make an argument for it here: you will see the dilemma as the story unfolds. This one is a tale of an industry with multiple long-term headwinds but a company inside it with good management and significant assets.

I came upon CPHC during a routine screen for low price-to-book, low EV/EBITDA, dividend-payers with high insider ownership. Canterbury IPO’d in 1994, trades on the NASDAQ, and pays about $1.3 million in dividends annually (about a 1.8% yield at current share price of ~$15 and a market capitalization of roughly $77m). Upon finding its $15m in cash and digging deeper, it is rare to find such a local business be publicly traded: a casino-horsetrack operator specific to a 260-acre site in the southwest Minneapolis suburbs.

Randall Sampson founded the company with his family in the early ‘90s to revive live horse racing in Minnesota following its closure in 1992. In the ensuing 30 or so years, he built the business up to the track and casino on a 260-acre plot about a half-hour drive from downtown Minneapolis. The business generates over $60m annually in revenue and $10m in EBITDA and has assets including the track, casino, cash, equity investments, and land (carried at cost!), of ~$109m, compared to $25m of liabilities (no long-term debt).

Now 66 and owning approximately 20% of the business, Sampson is faced with executing another revival. Horseracing is aging across America: according to a report by the New York Thoroughbred Horseman’s Association, American participation by employees, horses, and trainers between 2003 and 2022 declined by 39%. This is a loss of tradition and participation of almost half of the industry in the last 20 years. This would see international horsemen and trainers see improved competitiveness relative to Americans, as well as a smaller overall industry stateside when it comes to advertisement revenue, viewership, and associated gambling, despite broader digital tailwinds. Life is even harder for small operators like our Canterbury: Shakopee, MN, is not exactly the Mecca of US horseracing.

Kentucky’s supporting actor, bourbon, is facing systemic demand declines, prompting distilleries’ shuttering and furloughing to reduce costs and right-size their businesses. Without demand for mint juleps at the Kentucky Derby, the downward spiral of an American tradition snowballs, and part of Canterbury’s concessions revenues along with it.

But Sampson is not going down without a fight, and he has some assets.

CPHC has a war chest of a balance sheet, with no debt, cash to total liabilities of nearly 1:1, and total assets to liabilities of 4:1. Price to book is 1:1, but the stock is very thinly traded and highly held by insiders (23% of the company’s 5.1m shares are held by management, with a slight net increase in the last 12 months).

Management has identified 140 underutilized acres ripe for development, and so is looking to increase partnerships with developers to improve balance sheet liquidity. Residentially, the town of Shakopee has grown a rapid 10% since 2020 to some 44k persons, with average residential real estate going for $300k per acre and commercial real estate ranging between $200k-500k per acre.

Operationally, the casino contributes the bulk of revenue at 63%, with the ponies at 13%, food and beverage another decile or so, with the remainder from other equity investments and such. The core gambling business accounting for three-quarters of review relies on the 13% of horseracing revenue; when that dies, some of the casino and concessions will go with it. Eyes wide open, an investor could conservatively expect to see a downside case revenue 20-30% lower than 2024-25.

Taking these items into account, IH calculates liquidation value at $4-8 per share over the past 2 years, or approximately 40% of market capitalization. As always, this is extremely conservative to provide a margin of safety. Assumptions include the business losing its $13m of cash overnight and discounting remaining assets 25-50%. Without this conservatism, the company records:

• $19m TIF receivable for which management believes it will be made whole,
• Real estate carried at cost – 260 acres of land in Shakopee valued at the current commercial property low-end market rate of $200k/acre accounts for a $52m plot. This excludes property improvements.
• Land held for sale and equity investments are another $10-12m.
• Cash and investments of $15m
• $11m of other assets
• All compared to total liabilities of $26m and a market cap of $77m.

Walking down that list, the short term assets (excluding cash) and the TIF receivable by themselves repay all liabilities. Then the task becomes for how much you can buy the business and real estate. The real estate and investments are conservatively worth $65m per the balance sheet. The returns on the equity investments can sustain the $1-2m dividend and an investor effectively gets the cash flows and the cash of the business (EBITDA of $10mm) for free. Note importantly that the business is free of any long-term debt, and, as evidenced by the company’s recent reduction of its line of credit from $10m to $5m, it appears management has no intention of entering into larger credit agreements.

Regarding an enterprise value analysis, EBITDA of $9-10m annually on a terminal basis would yield equity value of $3-7/share. This assumes revenue decline of 3% annually to taken into account the long slow death march of the horseracing industry.

This is a perfect case of the importance of the balance sheet. Management is interested in stabilizing the business despite a national decline, and thus is executing on a long-term strategy to maintain its position. Between 2015-2025, the company sold a 37-acre plot for an amphitheater adjacent and invested approximately 40 acres in building 600 apartments, a restaurant, and an entertainment complex with real estate development equity partners, all while CPHC holds between 20% and 60% equity interest across four ventures.

One could look at this and certainly balk at management getting away from its traditional horse-racing/casino operations and into the apartment and restaurant business. But looking more closely, not only is management capturing some of the recent 10% growth of the surrounding Shakopee community by investing in apartments, but also potentially redirecting some of that traffic to its restaurants, casino, and horsetrack, given the apartments are all on properties adjacent. The business’s moat is its land.

Maybe the track will become the pillar of the burgeoning Shakopee community. Until that time, clip your coupons knowing you bought a $10m-EBITDA business for free within a good margin of safety and no debt.