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“INTERNATIONAL” GAME TECHNOLOGY

Their goal is lofty but when will investors start to buy it?

 

 

Investors have heard the pitch before.  IGT will double its 15% international share to 30%.  The international market is bigger than North America and growing twice as fast or high single digits.  The question is will and when will investors believe it.

 

The upside is compelling.  We calculate $0.30-0.45 (33-50% above TTM EPS) of additional EPS if IGT is successful.  We remain skeptical of such a big leap in market share and acknowledge it will take time even if it does happen.  That doesn’t mean we’re not bullish, however.  We do believe IGT will continue to grow its international share off the 15% base.  Even a move up to 20% share in a fast growing and large market would provide excellent growth.

 

Ultimately, IGT must show near-term improvement to provide investors with the visibility they need to begin to put pencil to paper.  Whether it’s 20%, 25%, or 30% share, all scenarios provide meaningful growth.  IGT, show us the money!  That could happen as soon as FQ2 (March) where we are projecting 6% YoY growth in international product revenues and 9% QoQ.  There could be upside to our numbers.

 

The good news for investors is that there seems to be a lot of long-term leverage in the international business.  The sales and product cost infrastructure to attain management’s goal has been laid.  That is, a lot of the increase in fixed costs is already hitting the P&L.  Now, IGT needs to deliver the top line.


European Banking Monitor

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

 

Key Takeaways:


* There was little movement again this week in several key indicators. Euribor-OIS continued to trend downwards, falling 4 bps over last week. Over the same period, the TED spread remained flat. Both of these series have largely renormalized.

 

Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 4 bps to 49 bps.

 

 European Banking Monitor - aa. euribor

 

ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  Banks deposited €758.8 billion in the latest reading.

 

European Banking Monitor - aa. ecb facility

 

European Financials CDS Monitor – Bank swaps were tighter in Europe last week for 36 of the 40 reference entities. The average tightening was 3.9% and the median tightening was 5.9%.

 

European Banking Monitor - aa. banks

 

Security Market Program – The ECB's secondary sovereign bond purchasing program purchased no sovereign paper in the week ended 3/16 versus €27 Million in the week ended 3/9. February-to-date the Bank has purchased a mere €210 Million versus €2.2 BILLION in the week ended 1/20 and €3.8 BILLION in the week 1/12. When questioned on the lack of buying over recent weeks, ECB President Draghi has only answered that the SMP is a non-standard measure that is “neither eternal nor infinite.” Clearly, with the some €1 Trillion injection of liquidity across the LTROs, the Bank is paring back buying and watching the results of sovereign bond auctions.

 

European Banking Monitor - aa. SMP

 

Matthew Hedrick

Senior Analyst


MACAU: SOUNDING LIKE A BROKEN RECORD

Broken Record - Macau Strong Again

 

 

Macau continues to defy expectations.  Daily table revenues (ADTR) averaged HK$775 million this past week, in-line with the month to date average.  With over half of the month in the bag, we are narrowing our full month forecast range to HK$24.5-25.5 billion, up 26-31% YoY.  This past week’s ADTR was 24% higher than the same week last year.

 

MPEL and WYNN made the biggest up moves in market share this past week, mostly at the expense of SJM and MGM.  Relative to recent trends both MPEL and WYNN are higher while LVS is trending below. 

 

MACAU: SOUNDING LIKE A BROKEN RECORD - macau march

 

MACAU: SOUNDING LIKE A BROKEN RECORD - march macau chart


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THE HBM: YUM, MCD, OSI, CAKE

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Commentary from CEO Keith McCullough

 

Most Read (Bloomberg) = Apple – it’s a good thing the US Equity market’s narrowing rally doesn’t depend on its momentum:

  1. INDIA – positive price momentum on the Sensex is nowhere to be found = down another -1.3% last night after the Indian government revealed more about its mounting deficit issues (-5.9% of GDP and rising); countries who are short oil are going to be in a world of hurt on a real inflation adjusted growth basis (India down -6.5% from its Feb 21 top)
  2. OIL – both Brent and WTIC continue to hold all immediate-term price momentum lines of support and this will continue to be the most relevant Global headwind to real inflation adjusted growth going forward. I have no idea how some of the bulls are getting to +3% US GDP in Q1 and Q2; its mathematically impossible in our model using the right GDP Deflator
  3. TREASURIES – monster breakout in bond yields last week – was it the YTD top or can they hold; the intermediate-term TREND line of support for the 10yr = 2.03% and now immediate-term TRADE support = 2.12%.

My immediate-term TRADE range for the SP500 is now 1.

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: YUM, MCD, OSI, CAKE - subsector

 

 

QUICK SERVICE

 

YUM: Yum Brands was initiated Outperform at Oppenheimer. The price target is $82.

 

MCD: McDonalds has apologized to Chinese consumers following the exposure of food safety scandals on Thursday.  Sophia Luan, Vice President of McDonald’s in China, said, "As a member of the managerial staff, I’m very sorry for the loopholes in our system. I apologize to our customers. From today, we will rectify operations of more than 1,400 outlets in China, not only this one."

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

WEN: Wendy’s gained 2.6% on accelerating volume.

 

PEET: Peet’s coffee continues to benefit from declining coffee costs.

 

 

CASUAL DINING

 

OSI: The parent company of Outback Steakhouse has filed documents with the Securities and Exchange Commission that indicate a possible IPO. 

 

CAKE: The Cheesecake Factory has unveiled fresh new menu items. Chicken ingredients feature prominently; we believe this trend will continue as operators seek to avoid the inflation in beef prices.

 

 

THE HBM: YUM, MCD, OSI, CAKE - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 



THE M3: SCC OPENING; GM PHII; MACAU ADR; HUMAN TRAFFICKING BUST

The Macau Metro Monitor, March 19, 2012

 

SANDS CHINA LTD. SETS OPENING DATE FOR SANDS COTAI CENTRAL Lasvegassands.com

Sands Cotai Central will officially open on Wednesday April 11th with 600 Condrad suites and 1200 Holiday Inn rooms. To date, LVS has invested $8BN in Macau.

 

GALAXY MACAU PHASE II TO INCLUDE MICE macabusiness.com 

According to Francis Lui Yiu Tung, the vice-chairman of Galaxy Entertainment Group, Phase II of Galaxy Macau will double the properties' size. Additions will include more non-gaming amenities including an increased focused on MICE business as he believes that Macau will become an important convention and meeting destination over the next 5 years.   

 

This Friday, GM is opening The Pavilion, a new high limit slot machine area for the premium mass gaming market. On March 30, the property will officially open its China Rouge members–only private club.

 

Mr Lui also confirmed that Galaxy has been in talks with Zhuhai authorities to invest in a resort on Hengqin Island.

 

MACAU HOTEL PRICES SOAR OVER HK TO HK1,607 Macau Daily Times

According to hotels.com, in 2011, Macau hotel prices increased 9% to HK1,607, making it the most expensive of Chinese cites; including being HK337 ahead of Hong Kong's ADRs.

 

LARGEST TRAFFICKING BUST RESCUES 41 WOMEN Macau Daily Times

On March 11, a joint sting by police in Macau and Liaoning and Guangdong provinces ended in the arrest of 30 suspects involved in abducting women and forcing them into prostitution; the largest human trafficking bust since June 2008. More than 20 of the women being forced into prostitution were released from captivity in Macau.


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