LEISURE LETTER (02/27/2015)

TICKERS: IGT


 EVENTS

  • Mar 5: The 3rd Session of the 12th National People’s Congress (NPC), China’s top legislature will convene in Beijing

headline news

  • IGT -
    • Received all gaming regulatory approvals required under the Agreement and Plan of Merger, dated as of July 15, 2014. The transactions contemplated by the Merger Agreement remain subject to U.K. court approval and other customary closing conditions set forth in the Merger Agreement, and are currently expected to close in early April 2015. The combined company will be named IGT.
    • Headquarters will be in UK; stock listed under NYSE- ticker IGT
    • 3 business units: North America, International, Italy
      • North America gaming segment (IGT gaming, Doubledown, sports betting) and lottery segment
      • International:  all business conducted outside of North America and Italy 
      • The Italy business unit will operate as it does today. All product development, marketing, manufacturing, and servicing will be supported by North America Lottery and North America Gaming as appropriate.
  • The Corporate Leadership team will be comprised of the following:
    Marco Sala – Chief Executive Officer, International Game Technology PLC
    Renato Ascoli – Chief Executive Officer, North America Gaming/Interactive (DoubleDown Casino)
    Walter Bugno – Chief Executive Officer, International
    Fabio Cairoli – Chief Executive Officer, Italy
    Michael Chambrello – Chief Executive Officer, North America Lottery
    Alberto Fornaro – Executive Vice President and Chief Financial Officer
    Donald R. Sweitzer – Chairman, IGT Corporation (North America) and Senior Public Affairs Advisor
    Robert Vincent – Senior Vice President, Human Resources and Corporate Communications
  • IGT chairman Phil Satre will serve as the new company’s chairman and IGT chief executive Patti Hart will become vice chairman.

Takeaway: Not a lot of senior management from the IGT side. 

COMPANY NEWS

Aristocrat -  Video Gaming Technologies (VGT) acquisition has been “highly accretive” to Aristocrat’s U.S. operations, more than tripling U.S. recurring revenue, said Aristocrat’s CEO Jamie Odell.  He added that the group expected increased debt levels associated with the VGT acquisition, as well as “a significant increase in interest costs” over the 2015 fiscal year.

ARTICLE HERE

INDUSTRY NEWS

Inbound visa policy - Macau’s Secretary for Social Affairs and Culture Alexis Tam Chon Weng says the Macau government does not wish to reduce the number of mainland visitors coming to Macau. It wishes instead to “improve” the issuance of visas to independent travelers from mainland China under the mainland’s Individual Visit Scheme (IVS), according to a statement from Macau’s Government Information Bureau.

‪Tam on Thursday said the local government would approach the central government in Beijing to discuss how to control the issuance of visas under the IVS policy. Tam admitted that the tourism industry has shown some concern over the government’s plans, but said that the 31 million-plus visitors that came to Macau in 2014 are more than enough.

The Portuguese-language channel of Radio Macau quoted Mr Tam saying that the new policy would have to be introduced “gradually”. He added that in his view a limit around the current 31 million visitors a year “wouldn’t be bad,” Radio Macau reported.

ARTICLE HERE

Takeaway:  Tam seems to be backtracking a little bit on his previous comments. However, the casino industry needs growth not a freeze at 31 million visitors.

Russia - The parliament of South Ossetia, which broke away from Georgia in 1990, has passed a law banning all gambling activities on its territory.
The region, which has close ties with Moscow, has ruled all slot machines, sports betting shops and bookmakers’ offices should be closed.

There are all indications now that the first hotel in the Primorye gambling zone will be opened in March, as initially planned. Work on its interior finish began earlier this week. But levels of investment across the zones varies widely.

Primorye officials in January said the region had received pledges of investment for about $2.2 billion.

ARTICLE HERE

Gongbei Tunnel - slated for completion in 2016. The construction of one of the main segments of the ‘super project’ Hong Kong-Zhuhai-Macau Bridge – the Gongbei Tunnel – is slated for completion by the end of 2016, according to Xinhua News Agency.

ARTICLE HERE

Takeaway:  Build more transportation infrastructure but limit tourists.  Makes sense.  Most of the infrastructure projects have been delayed. Will this one complete on time?

Indiana land bill -  The Indiana House voted (House Bill 1540) in favor to let riverboat casinos move onto land and to allow live dealers at Indiana’s two racinos. However, Gov. Mike Pence has stated that he opposes any expansion of gambling.  Pence added another wrinkle this week when he worked behind-the-scenes to oppose a provision of the bill that would allow live dealers for games like blackjack and poker at racinos in Anderson and Shelbyville.

The state’s current gambling laws allow live table games at riverboat casinos, but only slot machines and electronic games at racinos.

Takeaway: Indiana is facing tremendous competitive pressures and any part of this bill would help.

Olympic betting - Nevada gambling regulators voted Thursday to allow the state’s sports books to offer bets on the Olympics for the first time in years.

It was a move unopposed by anyone in the industry and cheered by the regulators themselves. International sports books in Great Britain, Ireland and Australia and offshore Internet sites already allow such bets.

ARTICLE HERE

Hotel developer interest in CBD - Interest has swelled for properties in densely populated urban corridors, whose demand drivers are pushing performance to historic heights. Hotels located in central business districts ended 2014 with higher occupancies (71.8% versus 63.7%), average daily rates ($157.82 versus $110.83) and revenue per available rooms ($113.35 versus $70.62) than their counterparts throughout the rest of the country, according to STR.    

“From an investor perspective, the (real estate investment trusts) and some of the other public companies are generally focused on buying assets in some of those locations. If I’m a developer and I’m going to build a hotel, my universe of potential buyers might be a little bit higher and a little broader if I were to build in an urban location,” said Joel Eisemann, chief development officer of the Americas for InterContinental Hotels Group.

ARTICLE HERE

River cruise lines cancel Russia in 2016 -  River cruise lines operating in Russia have announced cancellations and cutbacks for the 2016 river cruise season. AmaWaterways and APT Tours will both suspend operations in Russia in 2016, and APT Tours also has postponed the refurbishment of ms Anastasia -- a new addition to the line's fleet that was set to begin operations in Russia in May 2015.

ARTICLE HERE

Takeaway: Will ocean liners follow suit?

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:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015.