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EZPW: Going For The Gold

EZ Corp (EZPW) reported fiscal Q4 earnings this week and while profit rose 6.1%, the pawn lender noted that weakness in the gold market is going to put pressure on earnings. Guidance for the december quarter was a full 30% below Street expectations and FY2013 guidance was 13% below expectations.

 

EZPW: Going For The Gold  - image001

 

EZ Corp has two big issues it must deal with. In addition to adverse payday lending regulations in Texas, the company also faces headwinds from gold in their pawn lending business. EZPW noted that jewelry scrapping sales fell 10%, indicative of the weakness in the gold market in terms of volume. Notes Hedgeye Financials Sector Head Josh Steiner:

 

“We’ve recently come to the conclusion that rising gold prices are actually now a negative for the pawn lending industry, a reversal of the trend over the last decade. This is because rising gold prices give rise to growing competition, mainly in the form of “buy-here” gold shops. These pop-up stores are sprouting up everywhere and, on average, pay a slightly higher rate for gold than the traditional pawn operators, which is pressuring volume trends significantly.”

 

We think it’s probably best to steer clear of EZPW, even after today’s titanic sell-off.


CONFERENCE CALL DIAL-IN: WHAT WILL OBAMA DO NOW?

Hedgeye's Macro Team is hosting a call today with Neil Barofsky, former Inspector General of the Troubled Asset Relief Fund (TARP).  Details for the call, including the dial-in information, are below.

 

"We need to convince those seeking or trying to retain power that they will not get our votes unless and until they commit to meaningful change of [our] financial system."

                  -Neil Barofsky 

 

We will be hosting an Expert Conference Call with Neil Barofsky, the former Inspector General of the Troubled Asset Relief Fund (TARP). The call will be held today, November 7th at 11:00am EST, to discuss the future path of fiscal, monetary and economic policy under the Obama administration. 

 

Barofsky is intimately familiar with the inner workings of Washington; in late 2008 he was appointed to oversee the Treasury Department's administration of the $700 billion Wall Street/TARP bailout where he remained until his resignation in March 2011. He has become known for his relentless criticism of Treasury officials, including current Secretary of the Treasury, Tim Geithner.  Barofsky has officiated as an aggressive and outspoken overseer monitoring for waste and fraud at the federal level. During his time at the U.S. Treasury, more than $550 million in fraud losses were avoided and $150 million in fraudulent earnings were recovered for taxpayers. Given his extensive experience, we see Barofsky as being well-suited to offer a salient analysis of the policy implications of yesterday's election. 

 

Please dial in 5-10 minutes prior to the 11:00am EST start time using the number provided below.

 

Contact  if you have any further questions.

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 345918#

 



Today's Conference Call: What Will Obama Do Now?

Today's Conference Call: What Will Obama Do Now? - Obamabanner

 

"We need to convince those seeking or trying to retain power that they will not get our votes unless and until they commit to meaningful change of [our] financial system."
                  -Neil Barofsky 

 

 

We will be hosting an Expert Conference Call with Neil Barofsky, the former Inspector General of the Troubled Asset Relief Fund (TARP). The call will be held today, November 7th at 11:00am EST, following the Obama victory to determine the future path of fiscal, monetary and economic policy. By his own admission, Barofsky is a life-long Democrat and as a former senior official in the Treasury Department will have some keen insight into the future of policy in the Obama administration. 

 

Barofsky is extremely familiar with the inner workings of Washington; in late 2008 he was appointed to oversee the Treasury Department's administration of the $700 billion Wall Street/TARP bailout where he remained until his resignation in February 2012. He has become known for his relentless criticism of Treasury officials, often highlighting Tim Geithner as a particular problem. Barofsky officiated as an aggressive and outspoken overseer monitoring for waste and fraud. During his time as with the U.S. Treasury more than $550 million in fraud losses were avoided and $150 million fraudulent earnings were recovered for taxpayers. Given his experience and knowledge of the treasury it will be invaluable to hear his brutally honest thoughts on the outcome of the election and his insider's perspective on how it will economically effect our country moving forward.

 

 

Please dial in 5-10 minutes prior to the 11:00am EST start time using the number provided below. Contact   if you have any further questions.

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 345918#

 


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 80.28%
  • SHORT SIGNALS 78.51%

MPEL 3Q REPORT CARD

Takeaway: If you like Macau as we do you have to like MPEL. While the stock could consolidate over the near-term, we'd be looking for entry points

In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance

 

 

OVERALL

  • BETTER:  Overall EBITDA beat the Street and our expectations.  While hold was high, luck adjusted EBITDA was right in-line with our adjusted EBITDA estimate.  The outlook is bright and management ws very optimistic about Macau's near-term performance.

TABLE OPTIMIZATION 

  • BETTER:  COD had significantly improved table yields compared with prior quarter.  MPEL sees further upside on table productivity.
  • PREVIOUSLY: "Our rolling chip segment continues to be impacted by our table optimization strategy. This strategy has resulted in further tables being shifted from Altira to City of Dreams, as well as the movement of some tables from VIP to mass during the second quarter of 2012. While somewhat disruptive as it is happening, this initiative should set us up favorably going forward."

HIGH-END MASS MARKET

  • SAME: Despite supply additions (SCC), MPEL's mass table games segment grew 30% YoY.
  • PREVIOUSLY:  "The market-wide mass market table game segment continues to demonstrate strong year-over-year growth, expanding over 33% during the second quarter of 2012. This once again reinforces our mass market focus strategy, particularly at the higher end of the market, which we believe will provide a more stable, loyal, and profitable customer base for the foreseeable future."

STUDIO CITY

  • SAME:  They have entered the syndication stage of their financing for MSC and are also contemplating a high yield financing once the bank debt closes.
  • PREVIOUSLY:  "So again, we're very confident to have gaming as part of this exciting, integrated resort. And I would like reemphasize that after the land grant stage, whether it's us or any of our competitors, we are going down the same route in terms of applying for gaming or gaming tables."

COD MASS HOLD RATE

  • SAME:  3Q mass hold rate came in at 27.4%.  MPEL reiterates mass hold guidance of 25-30%.
  • PREVIOUSLY:  "We said 25% to 30%, and we're quite confident in COD will be very, very high end of that range going forward because of our enhancement of the efficiency on the floor during the last few quarters."

5TH TOWER (PHASE 3) AT COD

  • SAME:  It is a 1.5 million sq ft development (50% larger than Altira).  They are waiting for government approval but hope to start construction on the project by mid-2013. 
  • PREVIOUSLY:  "We are short of rooms at City of Dreams, and tower five has always been in the plan. And given our strength in mass and also the fact that we do need more rooms going forward; we're at 90% plus occupancy every single day of the year not just on weekends. We have completed all of our conceptual designs for that tower. And I can assure you, when it's built, it's going to be the ultimate art piece in Macau....again, it's subject to the government processes because this started as a apartment hotel in the early days, so we do need to have the land re-gazetted. But as soon as that is done, we would like to begin construction of that as early as next year."

VIP

  • BETTER:  There has been no pressure on credit and liquidity remains healthy. MPEL sees some business improvement compared with the past couple of months.
  • PREVIOUSLY:  "We've really spent our time and effort into improving the product of our VIP, knowing that there's been disruption. Inevitably when you renovate a VIP room, you will disrupt the business there. We have to close off sections of it. And I think that's why, on top of the general market trends, you are seeing some slowdown in terms of some of our VIP business."

ALTIRA EBITDA

  • SAME:  Business has stabilized but expect continued improvement in the quarters ahead.  Hold-adjusted EBITDA was $36 million.
  • PREVIOUSLY:  "So with the current run rate, I think we will see some continuous improvement in the EBITDA generated by this property going forward."

MPEL 3Q REPORT CARD - mpel2


NKE: Fundamentals Are Turning

Times are changing for Nike (NKE) as the company’s fundamentals begin to change. We believe that sentiment will turn on the margin this quarter. Nike’s stock price has traditionally been linked to growth of global futures but recently, that’s changed as you can see in the chart below. Stock growth is heading higher while Nike heads lower. 

 

Inventories at Nike are converging with gross margins. The company’s gross margins are expected to head higher in the back half of 2012 and could be positive over the next quarter. There’s a lot of hating on NKE right now, but that could soon change.

 

NKE: Fundamentals Are Turning  - image002

 

NKE: Fundamentals Are Turning  - image003

 

NKE: Fundamentals Are Turning  - image004


MPEL 3Q12 CONF CALL NOTES

MPEL beats us and consensus but exactly in-line with our hold adjusted EBITDA estimate

 


"We have delivered yet another impressive quarter of operating results, with strong year-over-year improvements in operating metrics in our mass market segments at City of Dreams providing us with greater earnings stability, particularly during a period of slowing
market growth in the rolling chip segment."

 

- Mr. Lawrence Ho, Co-Chairman and Chief Executive Officer of Melco Crown Entertainment

 

 

CONF CALL NOTES

  • On track to open MSC in mid-2015
  • They have entered the syndication stage of their financing for MSC and are also contemplating a high yield financing once the bank debt closes.
  • MSC will have capacity for 500 tables and will focus on main stream mass customers. 
  • EBITDA in Manila will be allocated on a pro-rata basis. Expect both phases to open together in 2014.
  • Assuming a 2.85% hold, EBITDA would have been $210MM an 8% increase on a normalized basis.  Altira's luck adjusted EBITDA was $36MM. CoD was $180MM on a luck adjusted basis (+17% increase).
  • Mass contribution: 75% of their luck adjusted EBITDA (CoD) and 67% of their luck adjusted EBITDA (company-wide)
  • The contemplated high yield notes will not be guaranteed by Melco Crown
  • 4Q Guidance:
    • D&A: $90-95MM
    • Corporate: $18-20MM
    • Net interest: $23-25MM  

 

Q&A

  • They are very positive on the Macau market headed into next year. The first few days of November have been quite phenomenal. 
  • Seeing some improvement compared to the last few months
  • Feel like they have one of the more exciting development pipelines in the gaming world: 2014 (Manila); 2015 (MSC), Tower 5 at CoD
  • In order for them to keep improving mass yields at CoD, they need to stay focused on their customers and keep up the quality of the property
  • Their yield on VIP tables is a little lower than some other properties in the market.  Hope to stabilize Altira over the next few quarters and expect to see improvement over the next few Q's.  They have been moving tables from Altira to CoD over the last few months.
  • Continue to examine ways to improve table productivity.
  • Studio City equity:  $825MM ($225MM completion guarantee).  First $800MM will go in pro-rata i.e. 60/40.  The remainder will go in a 100% funded by MCE, subject to the option for minority share holder to put in their 40% of that amount, but MPEL will know that in about six months.  So somewhere from zero to 40% of that incremental amount. 
  • Think that only they and Galaxy will be opening in 2015 and that other projects won't open before 2016
  • The first $150MM has already gone into the Manila project on a pro-rata 60-40 basis
  • Thoughts on dividends from Melco Crown next year and beyond?  They would love a dividend but the Board wants to make sure that the development pipeline are underway and fully funded before they consider dividend payouts. 
  • The shell is already built in Manila and they have been working on the deal for over a year.  What's built in Phase 1 is already set but they will try to make Phase 2 the iconic part of the project. They are happy with what has already been built. 
  • How much of their Mass business is premium Mass vs. "mass mass"
    • The premium mass is roughly 50/50 space wise
    • Margin wise, premium mass has a higher margin than regular mass since it's less competitive
  • Think that Altira's table optimization is almost done but its always a work in process in terms of tweaking the mass/VIP mix
  • Why do they need do to a Sr Note offering for MSC since they are almost net cash positive?  Financing structure at MSC reflects that they 1) don't own 100% of the project and 2) they have 2 other projects that they are working on. 
  • Anticipate spending about $600MM in Manila with $300MM funded through a local loan. 
  • Ph3 of CoD:  will be funded by cash and internally generated funds. Project cost won't be finalized until sometime next year but it will be significant given the huge SQFT.
  • Hold rate on slots also gets impacted on the mix of high roller slots and regular

 

HIGHLIGHTS FROM THE RELEASE

  • Net revenue of $1,011MM and Adjusted EBITDA of $226MM, coming in 4% ahead of our estimates and 6% ahead of Street
    • CoD: Net revenue of $$737MM and Adjusted EBITDA of $204MM
    • Altira: Net revenue of $$216MM and Adjusted EBITDA of $30MM
  • "The... decline in Adjusted EBITDA .... was driven by lower group-wide rolling chip volumes together with a lower blended rolling chip win rate, partially offset by strong improvements in our mass market table games and gaming machine segments together with our ongoing commitment to control costs."
  • "Altira Macau's underlying operating performance has stabilized following the implementation of our successful table optimization strategy"
  • "In relation to Studio City, we have made significant construction progress, with our piling and foundation work nearly completed, and we have now engaged our main contractor on a fixed price contract basis, giving us greater certainty and control over the project's cost. We also reached a major milestone in relation to the funding for Studio City, with our senior secured credit facilities now in syndication following the recent signing of a commitment letter. We anticipate that our debt financing package, once finalized, together with cash equity contributions from the shareholders of Studio City, will provide us a fully funded project"
  • "Recently signed a cooperation agreement regarding the development and operation of an integrated entertainment and casino complex in the Philippines, further solidifying the key terms and conditions of this exciting development"
  • "Completed a consent solicitation on our existing senior notes which enabled us to, among other things, release an additional US$400 million from the restricted
    payments basket, giving us the ability to more efficiently use our available cash to fund our impressive development opportunities."
  • CoD: "Improvement in Adjusted EBITDA was primarily a result of strong improvements in the mass market segments, including a 30% year-over-year increase in mass table games gross gaming revenue, partially offset by a decline in rolling chip volumes"
  • Altira: "Decrease in Adjusted EBITDA was driven by a lower rolling chip win rate together with reduced rolling chip volumes."
  • Other:
    • Capitalized interest: $2.6MM
    • Cash: $2.1BN
    • Debt: $2.4BN
    • Capex: $107MM

Early Look

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