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Q4 was likely very strong on most metrics but may not provide the upside that investors have come to expect.  Will 2011 be any different?



Singapore generated more revenue and profits than virtually anyone predicted in 2010.  Bravo.  Where do we go from here?  We are trying to put the math behind a credible theory that a lot of the initial upside was driven by the local Singaporean business.  If that business has been fully penetrated then growth could be impeded.  We estimate locals drove roughly one third of 2010 gaming revenues.


The problem won’t be growth.  Singapore should grow nicely, probably in-line with Southeastern Asian GDP plus a kicker from licensed junkets.  However, we suspect analysts and many in the investment community are expecting much more.  Indeed, analysts appear to be valuing Singapore EBITDA on a Macau-like trajectory.  We estimate the consensus target price is derived using an 18x 2011 EV/EBITDA multiple on LVS’s MBS property.  That’s aggressive even for a Macau property, despite the fact that in Singapore casinos pay income tax on gaming income while in Macau they don’t.


For Q4, our sense is that rolling chip was only up modestly from Q3.  Mass likely grew but will it be enough to drive more than the 15% sequential revenue gain that analysts appear to be projecting?  It might be tough.  October was clearly the strongest month of the quarter and December appears to have been a good month, but maybe lower gaming volumes than the operators were projecting.  Indeed, the monthly government tax receipts from gambling for October and November did not grow that much from Q3.


For 2011, will Singaporean tourism growth match the 20% increase generated in 2010?  To some extent, growth may be limited by a tough comparison of an explosive 2010.  The Singaporean government is projecting much lower visitation growth for 2011 and GDP estimates have recently been cut.  GDP and tourism growth will likely be the main drivers in gaming growth and while both are expected to be strong, they may not be enough to satisfy investors’ appetites for Macau like growth.  The licensing of junkets should boost growth, but not for LVS, at least not in 2011.  LVS is not sponsoring any junkets at this point.


Despite the recent underperformance of LVS versus other Macau stocks, the valuation remains steep and is indicative of expectations of upside over current Singapore estimates.  Consensus 2011 estimates of $1.4 billion in EBITDA for Singapore in 2011 look reasonable to us, not conservative.  We remain bullish on Macau, although the recent LVS market share loss looks sustainable.  Even with Macau, we question whether there will be a lot of upside to existing estimates.  Besides, if there is Macau upside, the more directly exposed Macau players (WYNN for instance) will fare better. 

Athletic Trends in the January Duldrums


Underlying trends for the athletic space remain very positive despite a meaningful deceleration in the latest week’s data. We’re going to float some benefit to the industry for taking a sales hit last week due to weather, and therefore expect it to pick up meaningfully this week. It is also worth noting that the second week in January has been among the Top 5 lowest grossing weeks in footwear in each of the last 2-years with the final two weeks of the retail calendar typically recording 40%-50% more sales volume compared to the 1H of the month. Here are a few key callouts from the week:

  • The bifurcation between performance and non-performance footwear continues to be at near-term highs of a 40% differential. Product portfolio management continues to be a potential source of outperformance at individual retailers – good for DKS & HIBB, even more favorable for FL & FINL.
  • In apparel, Running and Basketball apparel were the clear positive callouts accelerating on the week up +17% and +11% respectively while Outerwear was not only noticeably absent from the top performing categories, but actually turned negative on the week down -5%.
  • Sales of sports apparel at athletic specialty retailers continue to outperform up +2.3% on the week compared to +0% for the overall category. The family channel lead the week up +2.7%.
  • Continued apparel ASP increases were offset by a decline in unit sales across the industry reflecting the impact of anomalous weather. Sport Retailers were the only channel to increase unit sales on the week driven by lower prices down -1%.
  • On a regional basis, the South Central and South Atlantic regions materially underperformed after snow blanketed the region early in the week causing many businesses to close Monday. The Mid-Atlantic region was the positive callout up +12% after bringing up the rear only 2-weeks ago.

Athletic Trends in the January Duldrums - FW App Ind 1Yr 1 19 11


Athletic Trends in the January Duldrums - FW App Ind 2Yr 1 19 11


Athletic Trends in the January Duldrums - FW App Reg 1 19 11


Athletic Trends in the January Duldrums - FW weather 1 19 11


Athletic Trends in the January Duldrums - FW Perf v NonP 1 19 11


Athletic Trends in the January Duldrums - FW Table 1 1 19 11


Athletic Trends in the January Duldrums - FW App App Table 1 19 11


Casey Flavin



I love this quote from Nelson Peltz, Chairman of Wendy’s/Arby’s Group, in the company’s press release today, “We believe the way to maximize shareholder value is to focus all of our management and financial resources on continuing to build the Wendy's® brand.” 


Although I would tend to agree with this statement, the first thing I thought of was the company’s initial rational for the transaction…. I thought putting the two brands under one roof was the best way to maximize shareholder value?  Just over two years ago when the company announced the completion of its merger, Roland Smith, President and Chief Executive Officer of Wendy's/Arby's Group said, “As one company, we are well-positioned to deliver long-term value to our stockholders through enhanced operational efficiencies, improved product offerings, shared services and strong human capital.”


So what has changed over the last two years?  Wendy’s business has improved with restaurant level margins moving higher YOY almost every quarter since the merger (3Q10 margins were impacted by higher commodity costs) while Arby’s trends have continued to decelerate with margins down every quarter.


On May 19, 2010, we published a note titled, “WEN - Undervalued Yes, Where is the Opportunity?” that discussed WEN’s stock and provided a sum-of-the-parts analysis that suggested that the company’s stock was trading below its intrinsic value.  Specifically, we highlighted the fact that the Wendy’s brand alone accounted for more than 100% of the value of the company, which implied not only that investors were seemingly getting Arby’s for free but also that the significant erosion of the Arby’s brand was overshadowing Wendy’s value as a standalone concept.  Our sum of the parts analysis (shown below) shows that the Wendy’s brand continues to be undervalued. 


Given Trian Partners’ past success in creating value from mispriced securities, WEN management must recognize that they can unlock value by spinning off Arby’s.  And, it is likely not a coincidence that management is putting Arby’s up for sale after 4Q10 company same-store sales trends improved to +3.1% from -9.5% in 3Q10, implying a 325 bp acceleration in two-year average trends and the first quarter of positive comp growth in at least 15 quarters.


WEN - SUM OF THE PARTS  - wen sotp


Howard Penney

Managing Director



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The headline initial claims number fell 41k WoW to 404k (37k after a 4k downward revision to last week’s data).  Rolling claims fell 4.5k to 411.5k. On a non-seasonally-adjusted basis, reported claims fell 212.5k WoW.  As the third chart below shows, claims usually fall sequentially in this week of the year.


We continue to remind investors that based on our analysis of past cycles, the unemployment rate won't improve until we see claims move into the 375-400k range. That said, it is worth highlighting an important caveat. This recession has been different in that it has pushed the labor force participation rate down by ~200 bps, which has had a correspondingly positive improvement on the unemployment rate. In other words, the unemployment rate isn't really 9.4%, it's 11.4%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 11.4% actual rate as opposed to the 9.4% reported rate.








In the table below, we chart US equity correlations with Initial Claims, the Dollar Index, and US 10Y Treasury yields on a weekly basis going back 3 months, 1 year, and 3 years.




Joshua Steiner, CFA


Allison Kaptur


The Macau Metro Monitor, January 20, 2011


The number of passengers arriving into Singapore's Changhi airport rose 6.0% to 4,063,874 in December. Even though it is a new monthly record, it is a sequential slowdown from November's 7.7% YoY growth in number of passengers.



Singapore Technologies is said to be close to selling its office block in the Tanjong Pagar area for nearly $150 million to Resorts World at Sentosa Pte Ltd--nearly $1,500 per square foot on the current net lettable area (NLA) of 98,906 sq ft.  Tanjong Pagar is slated to be transformed into a new bustling waterfront district after the container terminals in the vicinity eventually move out.



Tourism chief Joao Manuel Costa Antunes, Director of the Macau Government Tourist Office, says his conservative forecast for Macau visitation is 10% growth.  IM believes the 10% target is not conservative but more realistic.

For visitation to reach double-digit growth rates, IM says Lot 5&6 needs to get back on track and a short timeline is needed for Wynn, SJM and MGM Cotai projects.  They think it's wishful thinking.



According to sources, Chinese banks lent out more than RMB 1 trillion by Jan. 19.  The report comes even as Chinese Premier Wen Jiabao said yesterday that his government will work to avoid "abnormal" loan growth during the current quarter.  Chinese banks tend to front-load their lending during the year to earn more interest income, so January and Q1 are usually the peak lending periods.  In January 2010, lending stood at RMB 1.39 trillion, by far the highest total of any month during the year.  In addition, China Development Bank had stopped lending for the rest of the month, having reached its quota.