Last week the PBOC reported total social financing of 760.8B yuan for the month of May versus the 1,300B yuan consensus estimate. Total social financing can be extremely volatile month to month, but when smoothing the data over the last twelve months the overall trend is still slowing, and the data is now contracting on a y/y basis. We care because credit has been a key driver of GDP growth in China, and this has also been a leading indicator for Macau GGR. LTM growth from total social financing has led Macau GGR growth by five months at a +0.61 correlation over the last decade (see below). In fairness, some other forward looking Chinese data points tell a better story for Macau GGR, and Macau GGR growth has remained surprisingly strong as TSF has decelerated in the last year, but this is still not a positive development.
Search Coverage List, Models & Reports
Search Results1-10 out of 120
Shares of RCL are down 23% since the peak back in January, and its forward P/E multiple has contracted by 28% from 15.2x to 10.9x mostly due to rising oil/USD and concerns about future supply growth. RCL has undeservedly been hit the hardest in the group, in our view, which we attribute to more exposure to the Caribbean. We think RCL’s valuation has created a very attractive risk/reward and we have three charts to illustrate our view.
CZR filed an S-4 today after the market closed disclosing its intention to take back the $1.1B convertible note. The convertible note does not mandatorily convert until October 2020, so CZR will have to provide some incentive for holders to convert. Interest payments from now until October 2020 total $140M and the convert could seemingly be sold in the open market for $175M more than CZR’s offer, so we suspect CZR will have to offer value equivalent to at least $175M. It’s possible CZR could use its buyback authorization to acquire some shares (we hope), but the more likely outcome is CZR uses cash to offer an incentive to convert, we think.
We looked at stock ownership for CEOs in our coverage and compared the results to other CEOs in the S&P 500. We also looked at prior periods of open market purchases by C-Level executives, and both charts are shown below. We believe stock ownership is the single best form of shareholder alignment. When executives take this a step further and use their own capital to buy stock in the open market – rather than just accumulating stock options – it’s even more bullish, as executives at that point are also confident enough in the direction of the business based on forward data that only they can see.
MGM’s valuation seems attractive, but the stock has underperformed. The question of activism has recently been raised more frequently during our conversations with investors, and that scenario may now be more plausible as the Tracinda position has declined to now under 5% and as investor frustration has grown. We think there are five key ideas investors want to see change, which could be positive for the stock.
This morning (5/29/18), MGM announced the acquisition of Empire City Casino – a racino located in Yonkers, NY – and a subsequent sale and leaseback transaction with MGP, all expected to close in 1Q19. The total cost is $850M, or 12.1x LTM EBITDA (9.7x after synergies), which is funded by cash and MGM equity ($260M). MGM will then enter a sale/leaseback transaction with MGP for $625M, which includes $380M of MGP equity. The net purchase price for MGM is then $225M representing 11.3x EBITDA (<6x after synergies). This is one of the more complicated structures we’ve seen including uses of both debt and equity for a small amount of EBITDA (2% of MGM’s 2019E EBITDA).
Lodging fundamentals have been strong and the stocks have been outperformers YTD despite broad macro concerns that the cycle feels toppy and despite weakness from other cyclical industries like cruise lines, for example. We think there are four key reasons why lodging stocks continue to work: 1) supply growth is likely peaking this year and the pipeline has stopped increasing; 2) demand trends have been modestly improving led by corporate travel; 3) inflation and rising oil prices are generally positive for RevPAR; and 4) lodging REIT M&A has sparked incremental interest.
MGM’s stock was down 5% after its analyst day on 05/10/18 and then it mostly traded sideways last week even after PASPA repeal. In terms of PASPA, regional U.S. represents about a quarter of MGM’s adjusted EBITDA and MGM is in states that are likely to legalize sports betting. We thought the analyst day was fine, but the stock also had a little bit of a bounce in the week leading up to the event. There also seems to be continued frustration from the investment community and a lack of management credibility still seems to be weighing on the stock. And specifically we’ve heard mixed views on MGM’s long-term targets.
This morning (05/14/18) the Supreme Court ruled that PASPA is unconstitutional, and it is now legal for states to authorize sports betting. Quick background: The Professional and Amateur Sports Protection Act of 1992 (PASPA) prohibited sports betting in the U.S., with the exception of a few states such as Nevada. In 2016 New Jersey’s case was brought to the Supreme Court (Christie v. NCAA) with an ultimate goal to overturn PASPA. Overturning PASPA now gives each state the sovereign right to decide whether or not to legalize sports betting.
MGM hosted an analyst day Thursday afternoon (5/10/2018) in Vegas. The event was well attended with ~100 people in the audience. MGM ran through 144 slides and presented for nearly five hours. They focused on financial improvement, an end to the development cycle and ramping cash flow, property/market advantages, Vegas, Macau, entertainment, pricing, and a lot of other stuff.
- 1 of 12
- next →