Late last night (03/14/19) the Macau government extended the concessions – that is, the right to operate casino gaming – for SJM (not covered) and MGM from March 2020 to June 2022, which now puts them in line with their four other peers in Macau. The extension required minimal/immaterial payments and labor terms, in our view, with MGM paying the government ~$25M, paying SJM ~$2M, and establishing a labor-related bank guarantee of ~$101M.
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This is a recurring piece we write monthly where we track several key monthly indicators, which have historically led Macau GGR growth. The data points for the most recent month show 10 of the 19 y/y indicators are better than the prior month versus 12 of 19 last month. We chart all 19 of the indicators, and we show a summary table in Exhibit 2.
Macau February GGR was released overnight, showing 4.4% y/y growth, which we think was roughly in line with a wide range of expectations, but lower than many of the expectations coming into the month after what appeared to be a softer Chinese New Year. When combining Jan/Feb to neutralize for the holiday timing GGR declined -0.5% y/y on a tough comp. Our initial expectation is March could be flat to up slightly y/y, which implies flat to down slightly daily GGR from Jan/Feb in line with long-term seasonality. There are no changes to our estimates, and our summary file with historical GGR data is updated here.
Timeshare stocks have rallied hard since the Christmas Eve bottom, with VAC up 61%, HGV up 33%, and WYND up 39% versus the S&P 500 up 19%. However, the stocks still remain well off their 2018 highs. For example, VAC remains 35% below its prior high and HGV remains 31% below its prior high, and it’s been entirely a function of multiple contraction. Interestingly, the S&P 500 is now only 5% below its prior high and credit spreads have narrowed considerably.
CZR reported 4Q and hosted its call after the close (02/21/19). The quarter missed us and consensus, and the commentary on the call implies 2019 EBITDAR estimates need to come down.
The quarter and the call were both positive, in our view. Property EBITDA was $425M versus our $387M and consensus of we think ~$365M, but VIP hold positively impacted results by $56M. Adjusting for luck, the 4Q number seems to be ~$369M, which included an $11M bad debt charge which we think is the new norm. This $369M run-rate property EBITDA could ramp as Morpheus ramps, and MLCO also just got additional tables in early 2019. The stock closed up 2% we think because MLCO beat estimates slightly ex-hold, and they’re finally showing improving trends at CoD Macau.
This is a recurring piece we write monthly where we track several key monthly indicators, which have historically led Macau GGR growth. The data points for the most recent month show 12 of the 19 y/y indicators are better than the prior month versus 10 of 18 last month. Note we added a new metric this month – Chinese freight traffic – which leads Macau GGR by three months. We chart all 19 of the indicators, and we show a summary table in Exhibit 2.
We compared 4Q earnings reports from Las Vegas Strip companies to the reported industry data, and we think the conclusion is CZR likely outperformed peers and gained market share during 4Q. CZR’s peers have all reported earnings, while CZR will report this week on Thursday (02/21/19).
Last night (02/14/19) the WSJ published that Carl Icahn has built a 10% stake in CZR (apparently a combo of stock and swaps) and he plans to push CZR to consider a sale, which follows news on 1/11 that he had initiated a position. The article also mentions that in the past several months management from ERI (not covered) had approached CZR about a possible deal but talks went nowhere. An ERI combination would be the most ideal scenario, in our view, as we talked about previously here.
We aggregated pricing trends across multiple vacation options/destinations including cruise lines, Las Vegas casinos, hotels in multiple global markets, airline fares, Disney resorts, ski resorts, and rental cars. The purpose of our analysis was to compare pricing trends for cruises and Las Vegas casinos to alternative vacation options to understand if recent years of pricing strength may begin to make substitute vacation options more attractive, which some investors have expressed to us.
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