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Gold Heads Lower

The price of gold has been flirting with $1500/oz today and can go considerably lower than that after starting the year a touch below $1700/oz. Over the last two months, the US dollar has appreciated in value considerably which has driven down the price of commodities (gold included). As you can see in the chart below, it's been a rough ride for those who were buying gold above $1600/oz.

 

Gold Heads Lower - Screen Shot 2013 04 12 at 2.22.39 PM


LVS WIDENS LEAD IN MACAU

This note was originally published April 12, 2013 at 13:45 in Gaming

  • Macau gaming operators’ property EBITDA grew 9% QoQ to $1.9 billion. 
  • With a high VIP hold of 3.1% in Q4 2012, Sands China increased its market-leading property EBITDA share to 32.5% from 27.8% in Q3 2012.  It is the highest level since Q2 2010.   Remember that Sands Cotai Central opened on April 11, 2012.
  • MGM and MPEL rose slightly while Galaxy, SJM, and Wynn all lost share.  Despite VIP hold near 3%, Wynn’s share broke below 15%, a steep drop from its 25% peak in Q4 2010.

LVS WIDENS LEAD IN MACAU - nn


End Of The Yen?

In the chart below, we've posted the USD/JPY currency cross. Since the Bank of Japan's stimulus plan was announced last week, the value of the Yen has fallen considerably as traders and investors flee Japan as the currency is burned. It's reminiscent of Federal Reserve Chairman Ben Bernanke destroying the value of the US dollar after announcing monetary stimulus plans throughout the years. The question remains: how low can the Yen go?

 

End Of The Yen? - Screen Shot 2013 04 12 at 2.22.56 PM


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BBBY: Finally Looking Interesting

Takeaway: Risks are passing, and consensus estimates look low to us. This is when being cheap actually starts to matter for a high return business.

Conclusion: There's been no shortage of reasons for us to be negative on BBBY, and it's underperformed accordingly. But the risks are passing, and there are emerging factors that cause us to model EPS/EBITDA above consensus. This is when being cheap actually starts to matter. If our model is right, this is a $90 stock in 12-18 months.

 

 

DETAILS 

We’ve been bearish on BBBY for much of the past year, as we couldn’t get over a) a slowing core business, partially due to increased pressure from on-line competitors, b) acquiring businesses (Cost Plus, Linen Holdings) to mask weak organic growth, c) integration risk associated with those businesses, d) BBBY’s office relocation in 2H, and the associated headcount/execution risk, and lastly e) stepped-up levels of capital investment to build-out new facilities, which we thought would erode returns.

 

Ultimately, BBBY was worth staying away from, as it disappointed in five of its past six quarters.  But things are changing on the margin. Specifically…

a)      While still anemic, the rate of growth in the core business has stabilized and is picking up. Comps in the latest quarter were only 2.5%, but they accelerated sequentially to 4.7% (from 2.9%) on a 2-year run rate.

 

b)      Housing prices up 11% year-to-date. That’s not exactly a newsflash to anyone keeping up with the market, but it definitely flies in the face of the ‘bearish consumer spending’ call that is fueled by the payroll tax hike and sequestration. The degree to which this will help discretionary spending is debatable, but historically, every 1% change in house prices resulted in 6-8bp increased consumer spending – typically on a one-year lag.  The point is that housing alone could offset the payroll tax hike (42-64bp hit to GDP). Tack on commodity deflation – which we think is in the cards – and it could all add up to be very bullish for the consumer, and for BBBY.

 

c)       The two acquisitions and the headquarters transition have passed through the riskiest periods, and the company emerged reasonably unscathed. It is now at a point where it can grow square footage at CPWM, and optimize SG&A and working capital.

 

d)      BBBY is past the halfway mark in a mini capex bubble to fuel non-store-related corporate projects. We should see a significant slowdown in the rate of capex in 2014.

 

e)      Inventories look solid, as the company had the best SIGMA move we’ve seen out of any company year-to-date. These moves are usually coincidental with some iteration of an upward stock price move. But they are just as often a setup for a greater move in quarters to come.

 

BBBY: Finally Looking Interesting - bbbysigma

 

The stock obviously realizes this to an extent, as it is up 20% year-to-date versus the S&P Retail Index at +16%. Despite the move, it’s underperformed the retail index by a whopping 29% over the past 12 months.

 

The point here is that BBBY remains an extremely high return company with a 44% RNOA, and it is trading at 13x earnings and 7x EBITDA. ‘Cheap without a catalyst’ usually means nothing to us, but we think that while the Street ended up with estimates at the higher end of guidance, they’ll end up being on the low end of what BBBY will ultimately print. If our model is right, then we’re looking at $2.2bn in EBITDA in 2014 and $6.12 in EPS. Every EBITDA multiple w BBBY equals $10 in the stock price.   A 20% year-to-date might sound rich. But 9x $2.2bn in EBITDA is a $90 stock. That’s another 36% upside from here.

 

BBBY: Finally Looking Interesting - bbby2


CHART DU JOUR: LVS WIDENS EBITDA SHARE LEAD IN MACAU

  • Macau gaming operators’ property EBITDA grew 9% QoQ to $1.9 billion. 
  • With a high VIP hold of 3.1% in Q4 2012, Sands China increased its market-leading property EBITDA share to 32.5% from 27.8% in Q3 2012.  It is the highest level since Q2 2010.   Remember that Sands Cotai Central opened on April 11, 2012.
  • MGM and MPEL rose slightly while Galaxy, SJM, and Wynn all lost share.  Despite VIP hold near 3%, Wynn’s share broke below 15%, a steep drop from its 25% peak in Q4 2010.

CHART DU JOUR: LVS WIDENS EBITDA SHARE LEAD IN MACAU - nn


Q1 2013 GLOBAL HOTEL TRANSACTIONS (UUP/LUXURY)

Volume weaker while number of transactions picked up slightly in Q1

 

 

Upper upscale (UUP) & Luxury Transaction Trends for Q1 2013

  • Q1 2013 worldwide hotel transaction volume (UUP & Luxury brands) was $2.0 billion, down from Q4 2012's $3.2 billion but higher than Q1 2012's $1.1 billion. 
  • The number of US luxury/UUP hotel transactions was 7 in Q1 2013 compared with 9 in Q4 2012 and 7 in Q1 2012. 
  • The number of non-US luxury/UUP hotel transactions was 7 in Q1 2013 compared with 3 in Q4 2012 and 4 in Q1 2012.
  • REITs were very active and there was a spike in portfolio deals.
  • Relative to a two-year trailing average, US average price per key (APPK) in the UUP segment gained 7% at $280k.  Non-US APPK in the UUP segment fell by 10% to $287k; however, IHG received a solid >$1MM APPK for its sale of the InterContinental London Park Lane. 

Delinquency rate

  • According to Fitch, the hotel delinquency rate in March was 7.71%, lower than the 8.87% seen in December.  The delinquency rate remains well below the relative high of 14% seen in Q3 2011.

 

Q1 2013 GLOBAL HOTEL TRANSACTIONS (UUP/LUXURY) - h2

 

Q1 2013 GLOBAL HOTEL TRANSACTIONS (UUP/LUXURY) - 1

 

Q1 2013 GLOBAL HOTEL TRANSACTIONS (UUP/LUXURY) - 2


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