LEISURE LETTER (11/13/2014)

Tickers:  NCL, CCL

EVENTS

  • Nov 13:  CHDN acquires Big Fish ; pw: 35368078
  • Nov 13-16
    • Macau Grand Prix
    • Hedgeye Cruise Pricing Survey
  • Nov 16-18: Quantum of the Seas investor event
  • Nov 17:  Potential Carnival Corp announcement?

COMPANY NEWS

NCL – (8K) "On November 12,  named executive officers and other executive officers who hold Management Units agreed to exchange their Management Units for ordinary shares of the Parent (the “Exchange”). The Exchange is a taxable transaction for the officers. As a result, on the date of the Exchange, each of our executive officers has agreed to sell a number of ordinary 

shares of the Parent necessary to cover the estimated taxes triggered by the Exchange."

Takeaway:  Tax-related management share sale.  NCL remains our top long idea among the cruisers heading into 2015.

CCL P&O Cruises and Cunard have cancelled all Black Sea port visits in 2015 citing safety and security concerns.  A total of 13 cruises are affected by the decision -- two of them on P&O and the others on Cunard's Queen Victoria.  The ships will go as far as Istanbul then turn round, rather than go into the Black Sea itself.  No information on which ports will replace the Black Sea ones.

http://www.cruisecritic.com/news/news.cfm?ID=6061

 Takeaway:  Black Seas will not play a role in 2015.

 

CCL (Princess) – According to Princess President, Jan Swartz said, "We met or exceeded every metric' in their $20m media campaign this year, including raising brand awareness, purchase consideration, web traffic and new visitors. As a consequence, Princess is planning a 2015 Wave season campaign, within the 'come back new' genre but with fresh spots, and television will again be among the media mix.

The latest Princess promotion is a two-for-one pricing discounts on  on more than 50 warm-weather destinations in its Winter Clearance Sale.  In addition, passengers can secure their stateroom with a reduced, $100 per person non-refundable deposit. The sale runs through Dec. 2. 

http://www.seatrade-insider.com/news/news-headlines/princess-to-roll-out-another-big-wave-season-campaign.html

Takeaway: The 'success' doesn't explain the huge discounting and promos by Princess this summer and winter seasons.

CHDN– acquires Big Fish, a mobile and online game maker

  • The transaction is structured on a cash-free/debt-free basis and is valued at up to $885M, including a base consideration of $485M and a potential earn-out payment of up to $350M based on 2015 Adjusted EBITDA, and a potential bonus payment to the founder and current CEO of Big Fish, Paul Thelen, of $50M based on 2016 bookings.
  • The purchase price will be paid in cash, except for approximately $15M paid in CDI common stock to Paul Thelen.
  • Subject to the satisfaction of these conditions, the transaction is expected to close by the end of the year.

INDUSTRY NEWS

AC –  State Sen. President Stephen Sweeney laid out a five-point, $305 million plan to stabilize Atlantic City’s finances , allowing casinos to pay a set amount in annual taxes, while redirecting the Casino Reinvestment Development Authority’s casino assessment to pay down $25 million to $30 million of the resort’s debt per year.

The plan would allow the resort’s casinos to collectively pay $150 million over the next two years. The next 15 years worth of payments would be indexed to gross gaming revenue.

Sweeney, who has publicly feuded with billionaire financier Carl Icahn over benefits for casino workers, proposed mandating casino license holders provide baseline health and retirement benefits. 

http://www.pressofatlanticcity.com/news/sweeney-lays-out-plan-for-atlantic-city-s-future/article_2a504d24-6910-11e4-9924-f78bf4d8194c.html

 

Revel – Brookfield Asset Management wants to invest at least $200 million into Revel and reopen it next year 

http://www.nj.com/news/index.ssf/2014/11/new_revel_casino_owners_plan_200_million_in_renovations_say_officials.html

Takeaway: Revel will be back.

MACRO

Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  We're seeing bottoms up slowing in Europe cruise pricing in our monthly survey. Europe has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely. Following CCL's earnings release, we recently turned negative on those stocks based on the negative European thesis. 

Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is 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.