Link to Report: MCD: Free-Falling February Comps
- Our thoughts on February same-store sales results
- Review of why we prefer MCD on the short side
Link to Report: MCD: Free-Falling February Comps
This note was originally published by Hedgeye U.S. macro analyst Christian Drake on March 06, 2015 at 11:19 in Macro. Click here for more information on how you can subscribe to Hedgeye.
Insular Strength: The domestic labor market remains insularly strong with February employment holding near cycle highs despite serial storm activity, the rising drag from the energy sector, and global growth in discrete retreat. The best run in payroll gains since the late 1990’s extended in the latest month with employment growth accelerating for a 6th straight month, the unemployment rate approaching the Fed’s NAIRU level and employment growth across the key housing demographic of 20-34 year olds accelerating.
Best Before the Crest: We remain late cycle in the current expansion and the data is always best before the crest but the labor market remains the recipient of positive macroeconomic reflexivity currently and the expectations build into the Fed announcement on March 18th will now be that much more acute.
A summary review of the February NFP highlights:
Christian B. Drake
Tickers: PNK,GLPI, LVS, MGM
Takeaway: We agree with most of the analysis provided by GLPI except the assumed multiple for PNK's OpCO. See our note "GLPI/PNK: QUICK THOUGHTS". We think GLPI's offer is closer to $30-32.
LVS - Sands China has announced a 5% pay rise for its staff, effective March 1, 2015. The company said it is increasing the salaries of 26,000 eligible full-time team members. The salary increase follows the payment of a bonus on February 16. The casino operator last month said that a total of 27,000 full-timers would receive a bonus of at least one month’s salary.
Takeaway: Following SJM's lead in raising salary.
LVS - reconsidering Rolling Stones and other marketing/entertainment programs to cut costs in Macau.
MGM - The Labour Affairs Bureau says it has suspended the use of all cranes and hoists on an MGM China Holdings Ltd building site in Cotai after a concrete pipe dropped by a crane there fatally injured a construction worker below. The Labour Affairs Bureau and MGM China both say they are investigating.
Takeaway: We're hearing this construction incident will delay MGM Cotai's opening to 1Q 2017, rather than late 2016.
Genting Singapore - RWS will borrow S$2.27 billion to refinance its debt. The five-year deal includes a $1.75 billion term loan, $500 million revolving facility and a $20 million bank guarantee facility.
Unpaid leave - Secretary of the Economy and Finance Lionel Leong Vai Tac has warned casinos to refrain from offering unpaid leave to employees that it has no work for, and to give them training instead. The newspaper quotes Mr Leong as urging casino operators: “Don’t offer unpaid leave, thank you. Offer paid training and training at work.” Speaking to reporters in Beijing, Mr Leong said how casinos treated their employees would count when the government reviewed their concessions.
Takeaway: Leong's comments are in response to Wynn Macau's suggestion that employees take unpaid leave. Unpaid leave had been a tool used by Macau casinos to cut costs without laying off staff. Not good for margins...
Infrastructure delays - The cost of the massive bridge linking Hong Kong with Zhuhai and Macau will rise above its HK$132.9 billion estimate because of a significant delay and the extra expense will be shared by the three cities, says Li Chunhong, director of the Guangdong Development and Reform Commission. Li said the completion date of the bridge would be revealed by October after an assessment. The bridge was scheduled to be completed next year, but Li said even 2020 was a difficult target because of technical difficulties in laying sections of tubes on the seabed and joining them to make a tunnel.
Takeaway: Another major infrastructure delay for Macau
Angela Leong - Legislator and executive director of SJM Holdings, Angela Leong On Kei estimates that the industry has spent more than MOP2 billion in modifying their air purifying facilities and ventilation systems in order to comply with local smoking regulations whilst the government has been “ambiguous” in its tobacco control policy. “If the government had implemented a full smoking ban in casinos in the very beginning, then a lot of resources and effort [to comply with smoking control policy] would have been saved,” Ms. Leong said.
Having expressed support on several occasions for a full smoking ban in casinos in Legislative Assembly sessions before, Ms. Leong argued that smoking lounges should be allowed to be retained in casino properties while having a full smoking ban in effect.
Takeaway: Angela is again pushing for an all-out casino ban on smoking. We think it is inevitable.
Chui - aims to ‘optimize’ Macau individual travel scheme
Illinois Feb GGR- fell 5% YoY
Takeaway: Below expectations. Was it poor weather-related or is the weather tailwind over?
LV/AC hotel prices - Hotel.com’s Hotel Price Index shows the average price of a hotel in Atlantic City rose 10% last year to $149 in 2014. Las Vegas increased 8% to an average of $120 a night.
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.
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Link to Report: Monday Mashup
Takeaway: The U.S. market read the favorable jobs report as bad news while the global risk perception decreased as ECB bond buying is set to begin.
Risk perception decreased, as Mario Draghi announced that the ECB would begin buying bonds today, March 9th. In our heatmap below, risk measures on the short term are mixed, while intermediate-term measures are mostly positive.
European Financial CDS - Swaps mostly tightened among European banks last week with Mario Draghi announcing that ECB bond buying will begin today, March 9th.
Sovereign CDS – With ECB bond buying approaching, sovereign swaps mostly tightened over last week. Spanish sovereign swaps tightened by -14 bps to 83 bps, and Portuguese swaps tightened by -17 bps to 118 bps.
Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk. The Euribor-OIS was unchanged at 11 bps.
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