LEISURE LETTER (06/26/2014)

Tickers:  ALL.AX, CZR, IKGH, MGM, BEE, H, L, HST, WYN

EVENTS

  • Friday, June 27 Las Vegas May revenues

COMPANY NEWS

ALL.AX/Aristocrat – confirmed the company is in talks to purchase U.S. competitor Video Gaming Technologies Inc for about $1 billion which makes slot machines primarily for Native American casinos. 

Takeaway: It would seem consolidation of the slot equipment companies is in full force - with both VGT and IGT now in play.  This deal solidifes Aristocrat's position in the Class II market.

 

CZR – in an interview with Bloomberg News, CEO Gary Loveman indicated that a Japan gaming resort would require at least a US$5 billion investment and that Caesars would have no problem financing such a project.

Takeaway: Maybe Mr. Lovemen should recall his Harvard teaching and academic days and revisit the Modigliani-Miller Theorem.

 

IKGH – (GGR Asia) still chasing HK listing and has been pursuing a dual listing for more than a year. The Hong Kong exercise is expected to be what’s known as a ‘listing by introduction’. In such a process, a company that has shares issued on another exchange can – subject to local regulatory approval – list its shares in Hong Kong without raising new funds or issuing new shares. As part of the HKSE listing process IKGH terminated the personal guarantees of Chairman Lam Man Pou and COO Vong Hon Kun.

Takeaway: Given the HKSE listing by introduction as well as the termination of the personal guarantees, we would not be surprised to see IKGH embark on an offering of HKSE listed shares following the listing.

 

MGM – will expand its M Life customer loyalty program to include Empire City Casino at Yonkers Raceway.  In the joint marketing agreement, members of Empire City's rewards program will receive promotions at MGM casinos and M Life members will receive promotions for Empire City. 

Takeaway: Interesting alliance and foray into the metropolitan NYC gaming market.

 

BEE – will ring the NYSE Closing Bell this afternoon. 

Takeaway: Could BEE management also be in NYC for other reasons and could a potential acquisition be in the near future?

 

H (Chicago Business) plans to sell a portfolio of 32 hotels that could be worth about $500 million and hired Jones Lang LaSalle Inc. to market 21 Hyatt Place and 11 Hyatt House hotels totaling 4,200 rooms across the United States. The portfolio consists mostly of former AmeriSuites, Sierra Suites and Summerfield Suites hotels that Hyatt upgraded to fly Hyatt Place select-service and Hyatt House extended-stay flags.

Takeaway: Recycling of capital continues.

 

L – Loews Hotels announced a contract to purchase the 556-room InterContinental Chicago O'Hare, located in Rosemount, for $120 million. The property opened in 2008 and will be rebranded as a Loews Hotel.

Takeaway: Loews continues its well broadcast efforts to increase the size and scale of its hotel portfolio.

 

Insider Transactions

HST - EVP & CFO Gregory J. Larson sold 18,000 shares on Monday, June 23rd at an average price of $22.43 and now owns 116,503 share.

 

WYN - CEO Geoffrey A. Ballotti sold 70,271 shares on Tuesday, June 24th at an average price of $75.00 and now owns 107,771.

Takeaway: More insider selling from the C-Suite!

INDUSTRY NEWS

US Government Goes to Macau – Agents of the US Department of Treasury Internal Revenue Service’s criminal enforcement unit traveled to Macau during May to gather information regarding the flow of money from Macau to US casinos. The US Treasury Department’s anti-money laundering unit has also been looking into the flow of money across the Pacific.

Takeaway: A continuation of the inquiry efforts announced back in March by the US Treasury.

 

UnionPay Point of Sale Machines – (Macau Daily TImes) Secretary for Economy and Finance Francis Tam stated yesterday that the Macau Monetary Authority gave no instructions to remove all point of sale (POS) machines from jewelry and luxury stores located inside or outside casinos. Mr. Tam noted those stores located at casinos will not be allowed to increase the number of POS machines they own, starting from July this year.

Takeaway: An interesting debate on the issue.

 

LEISURE LETTER (06/26/2014) - union pay

 

Union Pay & ICBC – The Industrial Commercial Bank of China (ICBC), launched its first credit and debit card in the southern hemisphere aimed at providing a more convenient tool for frequent travelers to Asia including China from New Zealand.  The ICBC debit cards with the UnionPay logo can withdraw cash from 30% of ATMs in New Zealand and is accepted by some 10,000 business outlets. As a reference point, UnionPay card holders reached some 4.2 billion, exceeding those of Visa and Master though UnionPay is yet the most widely used card in the world.

Takeaway: UnionPay is not going away and this announcement with ICBC should help quell the concerns regarding UnionPay.

 

Thailand World Cup Arrests – Thai police arrested more than 1,000 people, including four foreigners, in a crackdown on illegal betting during the World Cup. Police also seized betting slips worth USD525,000 during raids since the World Cup kicked off in Brazil on June 12. On Tuesday, police and military officials arrested four foreign nationals on suspicion of illegal betting at a sauna in downtown Bangkok, Chantavit said.  Of the 3 suspects – one from Macau and two from Hong Kong – were believed to be bookmakers. The fourth, a Malaysian, was placing bets at the time of his arrest

Takeaway: Given today's highly contested match between the US and Germany, we expect more arrest annoucements. 

 

Saipan Gaming – Saipan’s first electronic gaming facility has had its soft opening. Club C, at Kanoa Resort in Chalan Kanoa, launched six months after the Commonwealth of the Northern Mariana Islands, a U.S. Pacific territory, passed a law to regulate e-gaming. The new club will have its formal opening on July 18, and will be targeted at tourists. Club C currently has 64 machines available for use, out of the total 112 machines ordered.

Takeaway: The build-out of Saipan begins.

 

Florida Day Boat Gambling – as a follow-up to our Tuesday story regarding Victory Casino Cruises begins offering a gambling-focused day cruise out of Mayport (Jacksonville) -- the 1st sailing was sold out.  Recall, the 600-passengers, high-speed catamaran features 21 table games and more than 300 slots sails twice daily at will sails twice daily at 11 a.m. and 7 p.m. 

Takeaway: We expect good demand as high quality offering such as this experience is much easier for greater Jacksonville residents than a drive to South Florida. 


Las Vegas Tourism – Las Vegas McCarran Airport traffic during May increased 0.3% versus +1.7% during April.

Takeaway: We expect good Vegas revenues this Friday, driven by baccarat.

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.


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more