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REGIONALS: SHOW ME THE GROWTH, MO

Preliminary gaming revenues from one of the riverboat markets shows that August may be another soft month for domestic gaming.

 

 

According to unofficial data, we believe Missouri gaming revenues, adjusted for the closing of St. Jo Frontier Casino, dropped 1% YoY in August—another disappointing month for the “Show-Me” state.   On a sequential revenue basis, Missouri came in 5% light.  We look at monthly sequential revenue based on the previous 3 months, adjusted by a historical seasonality factor. 

 

We won’t get the property details until later this week but we wonder if PNK’s Lumiere and River City properties, which outperformed in July in part to high table hold and easy comps, can continue to show solid growth in a poor macro environment.  Obviously, ASCA maintains the highest exposure to Missouri but we don’t think Missouri will be the only regional market to disappoint.

 

Other riverboat markets may be better, or worse, than Missouri but we want to stress that all riverboats (on a same-store basis), except Louisiana, showed slowing sequential revenue in July.  We have been cautious on regional gaming post Q2 and a weak August would corroborate our bearish stance.

 



MACAU IN SEPTEMBER THUS FAR

Early September forecast of HK$20-22BN, up 35-48% YoY.

 

 

This is hardly worth commenting on but we’ve got data on the first 4 days of September.  Average daily table revenue dropped from HK$747 million in August to HK$690 million.  Hold was probably a little low especially given that Wynn’s market share dropped to 5.4% which is obviously not sustainable.  Galaxy’s share was also unsustainably low. 

 

We do expect September to fall sequentially from August both because August was an amazing month and September is historically a softer month.  Our current projection is for September gross gaming revenues of HK$20-22 billion which would provide healthy YoY growth of 35-48%.

 

MACAU IN SEPTEMBER THUS FAR - sept 


UA: Definite Net Negative

 

These management changes are definitely the right thing for UA, but they play into our call that you don’t want to own this stock when then the company is hunkering down, retrenching, reorganizing its business, and investing capital to facilitate the next leg of growth. 

 

In another 18-24 months, having a ‘Chief Supply Chain Officer’ and ‘Chief Performance Officer’ might prove to be the best move since they launched Compression Apparel. In his usual ‘take no prisoners’ approach to the business, Kevin Plank very quickly addressed UA’s fulfillment problem.   

 

As for Wayne Marino, let’s not forget that he is a CFO by trade. After doing such a solid job seeing UA through the IPO process, he essentially built the finance organization that exists today. But unfortunately, in a strong sign of the Peter Principle at work, he was elevated to a role (COO) where he was simply ‘average’ as opposed to ‘great.’  He is sticking around for six months for transition purposes. Clearly, this is not a ‘clear your desk and security will escort you out’ situation.

 

We continue to think that there are few businesses in US retail that have the kind of Blue Sky growth that UA has ahead of it. But before we see things like Footwear, International, Retail and Women’s succeed, we’re going to need either more time, capital, and more likely – both.

 

For the long-term holders who own this name because they think it will triple in another 5-years, then check the box and move on – everything is fine and on-track. But the upside/downside risk here for anyone with a shorter duration clearly favors the downside.

 

 

Brian P. McGough

Managing Director

 

 


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THE HBM: DNKN, SBUX, DIN

THE HEDGEYE BREAKFAST MENU


Notable macro data points, news items, and price action pertaining to the restaurant space.

 

MACRO

 

Commodities

 

Over the last few months, in particular, foodstuffs have seen prices hold steady while the overall commodity index, as represented in the chart below by the CRB Commodity Index, has declined.

 

THE HBM: DNKN, SBUX, DIN - food vs comd

 

 

QUICK SERVICE

  • DNKN was initiated “Sell” at Goldman Sachs with a price target of $23.
  • DNKN was initiated “Equal-Weight” at Morgan Stanley with a price target of $29.
  • DNKN was initiated “Neutral” at BofA with a price target of $29.
  • DNKN was initiated “Equal Weight” at Barclays with a price target of $27.
  • DNKN was initiated “Buy” at Stifel Nicolaus with a price target of $33.
  • DNKN was initiated “Market Perform” at Wells Fargo.
  • DNKN was initiated “Outperform” at William Blair.
  • SBUX plans on tripling its China store base by 2015 and step up growth in other markets like South Korea, Indonesia, Malaysia, Singapore, Thailand, and Australia by introducing Via Ready Brew.

CASUAL DINING

  • DIN has named Tom Emrey as CFO.  Mr. Emrey joins DineEquity from Universal Studios Home Entertainment.  Prior to Universal Studios Home Entertainment, Mr. Emrey held a number of senior finance positions at Nestle USA.

THE HBM: DNKN, SBUX, DIN - stocks 96

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


THE M3: SANDS INCREASE LOAN TARGET; MPEL MANILA INTEREST; RECRUITMENT; WYNN COTAI; INDIA

The Macau Metro Monitor, September 6, 2011

 

 

SANDS' CHINA UNIT SAID TO INCREASE LOAN BY $200 MILLION TO $3.7 BILLION Bloomberg

Sands China has increased its loan target to US$3.7BN from US$3.5BN.  As well as using the proceeds to refinance debt, Sands China will use the money to fund the completion of the construction of two phases of Sands Cotai Central.  The facility is expected to close at the end of Sept 2011.  About 10% of the loan was sold in general syndication to around 16 banks.

 

PACKER, HO MAY INVEST $1 BILLION IN MANILA CASINO, GAMBLING REGULATOR SAYS Bloomberg

According to Cristino Naguiat, Chairman of PAGCOR (Philippine Amusement & Gaming Corp), James Packer and Lawrence Ho may invest US$1BN in a Manila casino project.  "Discussions are still ongoing with MPEL. I think they're serious," said Naguiat.  

 

The Philippines awarded four gambling licenses in 2008 and 2009.  Each Philippine licensee agreed to invest $1BN over five years.  Three of the four that were given licenses in 2008 to 2009 were a venture between Genting Malaysia and Alliance Global Group Inc., Philippine property developer Belle Corp, and Philippine ports magnate Enrique Razon’s Bloombury Investments Holding Inc.  The 4th licensee may be Universal Entertainment Corp, a Japanese maker of pachinko pinball machines, who started building its project in June and plans to open by 2014, according to Kazuma Ishioka, a Tokyo-based spokesman.

 

Belle and Bloombury have started construction while the rest will begin by 1Q 2012, Naguiat added.

 

SANDS CHINA LOOKING FOR STAFF Macau Business

According to Sands China, around 1,300 job seekers attended Sands' latest recruitment fair in late August.  The August recruitment fair is the second from Sands China this summer, having completed their first in July.  A new recruitment fair is already scheduled for September 28 and 29.

 

WYNN SUBSIDIARY TO PAY LOCAL FIRM US$50 MILLION FOR COTAI LAND Macau News

According to Wynn Macau's interim report, the Wynn subsidiary associated with the Cotai land agreement is Palo Real Estate Co. Ltd., who is subject to a 10% voting interest by Macau businessman Wong Chi Seng in Wynn Macau. The interim report also said that the company was finalizing its Cotai project's scope and budget. 

 

LOCAL FIRMS MULLS INDIA CASINOS Macau Daily Times

According to a Mumbai-based developer, gaming operators from Macau, Singapore and Las Vegas have shown interest in the technology, branding, marketing or even running the gaming operations of his off-shore Casino Royale, based in the state of Goa.  The revenue of Goa casinos has been growing 50% a year since 2008.  Goa and Sikkim are the only two Indian states that allow live gaming.


TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY

How Low Will Moneycenter Margins & Earnings Go in 2H11 and 2012?

*** Tune in for our conference call TOMORROW at 11 am***

  • Quantifying the profound extent of net interest margin pressure from the current rate environment for BAC, JPM, WFC & C 
  • Pinpointing precise timing of that pressure 
  • Layering on the enormous earnings headwinds from credit renormalization - impact and timing

Having trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser.

 

This week's notable callouts include tightening in US and European bank swaps WoW, as of Friday, and increased sovereign swaps.  


Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Positive / 6 of 11 improved / 2 out of 11 worsened / 3 of 11 unchanged
  • Intermediate-term (MoM): Negative / 1 of 11 improved / 8 of 11 worsened / 2 of 11 unchanged
  • Long-term (150 DMA): Negative / 1 of 11 improved / 7 of 11 worsened / 3 of 11 unchanged

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - summary

 

1. US Financials CDS Monitor – Swaps tightened across all 28 major domestic financials in our table last week.  In contrast, only two companies (ACE and ALL) have tighter swaps compared to one month ago. 

Tightened the most vs last week: ALL, CB, XL

Tightened the least vs last week: BAC, WFC, MS

Widened the most vs last month: BAC, LNC, HIG

Tightened the most/widened the least vs last month: ACE, ALL, CB

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - us cds

 

2. European Financials CDS Monitor – Banks swaps also tightened in Europe last week.  37 of the 39 swaps were tighter and 2 widened.   The average tightening was 10%, or 47 bps, and the median tightening was 7%. 

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - euro cds

 

3. European Sovereign CDS – European sovereign swaps were wider week over week across the continent. We are keeping a close eye on France, which is critical to the EFSF, and where swaps widened by 19 bps to 184 bps week over week. We believe the CDS market is currently pricing in decreased hedge effectiveness in addition to improvement in sentiment around sovereign solvency.  Judging by the Greek bailout, regulators are making a concerted effort to design a bailout that does not trigger CDS.

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - sov 1

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - sov 2

 

4. High Yield (YTM) Monitor – High Yield rates fell 38 bps last week, ending at 7.69 versus 8.13 the prior week.

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 36 points last week, ending at 1536. 

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - lev loan

 

6. TED Spread Monitor – The TED spread backed off slightly from its YTD high, ending the week at 31.5 versus 32.8 the prior week.

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - ted spr

 

7. Journal of Commerce Commodity Price Index – Last week, the JOC index rose slightly to -1.9.

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - joc

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields hit another new all-time high, ending Monday at 1931.

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - greek bonds

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 14-V1.  After bottoming in April, the index has been moving higher.  Last Friday, spreads fell 13 bps and closed at 150 bps.

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - mcdx

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index rose sharply off a low level, climbing 199 points to 1740.

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - baltic dry

 

11. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 10-year yield fell to 1.99, pushing the 2-10 spread to 178 bps.   

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - 2 10 spread

 

12. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows the following:  8.2% upside to TRADE resistance, 2.6% downside to TRADE support.

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - xlf

 

Margin Debt Flat in July

We publish NYSE Margin Debt every month when it’s released.  This chart shows the S&P 500, inflation adjusted back to 1997, along with the inflation-adjusted level of margin debt (expressed as standard deviations from the long-run mean).  As the chart demonstrates, higher levels of margin debt are associated with increased risk in the equity market.  Our analysis shows that more than 1.5 standard deviations above the average level is the point where things start to get dangerous.  In July, margin debt held close to flat at $306B.  On a standard deviation basis, margin debt fell to 1.21 standard deviations above the long-run average.

 

One limitation of this series is that it is reported on a lag.  The chart shows data through July.

 

TUESDAY MORNING RISK MONITOR: SPAIN, ITALY, AND FRANCE SOVEREIGN SWAPS UP SHARPLY - margin debt

 

Joshua Steiner, CFA

 

Allison Kaptur

 

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
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