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    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Takeaway: Another article focusing on money laundering in Macau

TICKERS:  SGMS

EVENTS TO WATCH:  UPCOMING EARNINGS/CONFERENCES 

TODAY

  • JP Morgan Gaming, Lodging, Restaurant & Leisure Forum
    • FCH, PNK, PENN, BYI, CCL, SGMS, GLPI, SHO, MCRI

Monday-Thursday, March 10-13

  • 2014 Cruise Shipping Miami Conference (CSM)

Friday, March 14

  • Hyatt Investor Day

COMPANY NEWS

SGMS:  missed 4Q EBITDA expectations but raised its 2014 WMS synergy guidance.  Yields also held up better than expected thanks to WAP outperformance.

  • Takeaway:  Cautious on the stock over the intermediate and long term given the lack of cash flow and slot headwinds over the next two years.

Starwood Capital – acquired U.K. hotel and conference center operator De Vere Venues from the De Vere Group for approximately $385 million. The transaction includes a collection of 23 owned and leased hotels, mostly in and around London, such as Wokefield Park, Horsley Park and Latimer Place.

Takeaway:  Could Barry Sternlicht be reuniting the band and will he make one more run at another lodging IPO?  We'd like to see it - Sternlicht is a money maker.  No we're not kissing arse for a piece of the underwriting - we only do research!  Stay tuned…

 

TUI Cruises (CSM):  When asked about the higher fuel prices for 2015 due to the implementation of the  more expensive low-sulphur fuel (MGO), TUI Cruises CEO Richard Vogel responded, 'We are certainly not going to stop cruising in Northern Europe but we will just have to see just how much extra passengers will be willing to pay to cruise there."  Vogel added he was confident Germany would finally overtake the UK this year and said that reaching 3m passengers is a feasible target for the future.  His brand and AIDA combined are adding 37% capacity with their four newbuilds and—assuming they fill them—this alone would bring the German total to 2.2m.

Takeaway:  Strong forecast for Germany this year but we see mixed pricing for the AIDA brand

INDUSTRY

Authorities announce first local avian flu case Macau Daily Times, Macau Business 

The Civic and Municipal Affairs Bureau (IACM) and the Health Bureau (SSM) have announced that a sample taken yesterday from live chicken imported from the mainland has tested positive for the bird flu virus. It is the first time an H7-type avian influenza virus has been detected in Macau since the latest outbreak of bird flu began in the mainland early last year.  While still early, the Health Bureau stressed that none of the workers who were in contact with the poultry have displayed any flu-like symptoms. 

Takeaway:  A small risk but our studies have shown bird flu have not impacted Mass revenues in the past. Only time will tell if the bird flu jumps from the avian to humans. 

Macau – Reuters published a story about how Chinese citizens are using their Union Pay bankcard (a Chinese government backed financial institution) to funnel money out of China and into other foreign countries – including Macau.

Takeaway: The article is actually informative and a little troubling.  It goes through the UnionPay structure and how it is being used to launder money and contribute to Macau’s gaming success.  We all know this goes on but the article could really raise some eyebrows here.  There seems to be an increasing amount of talk recently regarding Macau money laundering.  We commented yesterday on the US State Department asking for increased junket oversight and a lowering of the threshold for reportable transactions.

 

Some of it could be politically motivated – Steve Wynn and Sheldon Adelson are publicly not fans of Obama’s policies and the Administration has been accused of using the IRS and other government agencies against their political enemies.  Whatever the agenda, the realities of the Macau gaming business seem to be coming to light in the US public domain.  Definitely something to pay attention to with the stocks up and sentiment running high and analysts saying there are no risks.

 

Cruises set new record in Europe with 6MM passengers Hosteltur 

President of CLIA Europe, Pierfrancesco Vago said the persisting economic weakness in Europe remains a challenge but he is optimistic that hte cruise industry will continue to grow in 2014.  In 2013, 475k Spaniards chose a cruise to enjoy their holiday -similar levels to 2008.

  • 6.35MM European cruise passengers in 2013
  • 4/5 Europeans decided to enjoy cruise around Europe (Mediterranean - most popular)
  • Spain remains top 5 source market for Europe
  • In response to national economic indicators, Spain could improve their results in 2014

 Takeaway:  Can 2014 surpass 2013's good year?  So far, agents are optimistic.

 

MACRO

Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.