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July 23, 2015

July 23, 2015 - Slide1

 

BULLISH TRENDS

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BEARISH TRENDS

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July 23, 2015 - Slide7

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July 23, 2015 - Slide9

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ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011

Takeaway: Investors withdrew -$11.5 billion from active domestic equity funds last week, the largest weekly withdrawal since August 2011.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

The standout in the most recent ICI mutual fund survey was that investors withdrew -$11.5 billion from domestic equity funds in the five day period ending July 15th. This amounts to the largest weekly withdrawal from the asset class since August 2011 and now amounts to the worst start year-to-date in the public ICI data for U.S. stock funds. Cumulative outflows in 2015 have now reached -$75.1 billion in the first 28 weeks of the year, over -$12 billion worse than the 28 week start in 2012 where -$63 billion left the active domestic equity mutual fund category (and over -$20 billion worse than the draconian 2008 period). Conversely, investors continue to pour money into World or International stock funds with cumulative 2015 inflows tallying +$79.6 billion. That is good enough for a +$3 billion better start than the prior best 28 week period in 2013, where the first 6.5 months generated +$76.2 billion in investor inflow.

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI12

 

 

In the most recent 5-day period ending July 15th, total equity mutual funds put up net outflows of -$7.7 billion, trailing the year-to-date weekly average inflow of +$161 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund contributions of +$3.8 billion and domestic stock fund withdrawals of -$11.5 billion. International equity funds have had positive flows in 48 of the last 52 weeks while domestic equity funds have had only 10 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net outflows of -$487 million, trailing the year-to-date weekly average inflow of +$1.9 billion and the 2014 average inflow of +$929 million. The outflow was composed of tax-free or municipal bond funds withdrawals of -$35 million and taxable bond funds withdrawals of -$452 million.

 

Equity ETFs had net subscriptions of +$7.8 billion, outpacing the year-to-date weekly average inflow of +$2.5 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$2.6 billion, outpacing the year-to-date weekly average inflow of +$907 million and the 2014 average inflow of +$1.0 billion.

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI1 2

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2014 and the weekly year-to-date average for 2015:

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI2

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI3

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI4

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI5

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI6

 

 

Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI13

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI14

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI15

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI16

 

 

Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2014, and the weekly year-to-date average for 2015. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI7

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI8

 

 

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the Financials XLF ETF lost -$1.5 billion or -7% to redemptions. The large outflow was likely due in part to dovish comments by Fed Chair Janet Yellen on July 15th. In addition, the iShares 20 year Treasury ETF had a better week with the TLT gathering $176 million in new assets, good for a +4% increase in AUM.

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI9

 

 

Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI17

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI18

 

 

Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$2.0 billion spread for the week (+$173 million of total equity inflow net of the +$2.1 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is +$1.6 billion (more positive money flow to equities) with a 52-week high of +$27.9 billion (more positive money flow to equities) and a 52-week low of -$18.1 billion (negative numbers imply more positive money flow to bonds for the week.)

  

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI10

 

Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

ICI Fund Flow Survey | Eye Popping Domestic Equity Outflow - Worst Week Since 2011 - ICI11 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

js


MACAU LEGEND Q2 2015 CONFERENCE CALL NOTES

CONF CALL

  • Starts off discussing the Cape Verde investment, and calls it his first step in diversifying outside of Macau. 

  • Published a profit warning a week ago, and briefly cited the weakening gaming market in Macau

  • They feel comfortable with their positioning in Macau particularly within the mass market segment 

Cape Verde Comments

  • Cape Verde is also a former Portuguese colony

  • They believe Cape Verde is well positioned for tourism expansion from markets like Europe, South Africa, Western Africa and South America

  • Main Airport is 10 mins from their property site 

  • Site will be in Praia the capital city, on the main island of Santiago

  • They view it is as the next Macau. Say the govt. is into new alternatives for growth. 

  • They'd like to bring about the same themes as Macau

  • They are aiming for completion of the integrated resort in 3 years 

  • They received the Island's 2nd license for land based gaming. HLT has the first license. 

  • Macau Legend now holds the exclusive license for online gambling/gaming and betting

  • They look to continue to build off the Portuguese culture and go where there are competitive tax rates, growing and established tourism, but look to help other countries grow and prosper along the way

  • Capital budget for the project 250 million euros, and will use the same contractors as they use in Macau. Reason being is they want to minimize execution risk

  • Property will include beach access and will also have island access.  

  • 150 hotel rooms, and additional Boutique hotel will be on the property

  • Cape Verde room rates and occupancy were cited as strong 

  • They were awarded two land leases, one for beach and for the island, both are 75 year long leases and offer favorable terms (which were not disclosed).

  • Taxes for their land based casino operations will be as follows

  • 10% on GGR for Mass

  • 7.5% on GGR for VIP 

  • There is no limit on the amount of tables or slots they can operate 
  • Cape Verde government is using Macau gaming laws as a basis for their laws

Comments on Cape Verde as Country

  • Noted as a safe and stable place 

  • Relatively developed and growing 

  • They have been enjoying a serious ramp in visitation, mostly from Europe and Africa

  • Flight times to Europe 3-6 hours 

  • Flight times to Brazil 3 hours 

  • Lots of Chinese in the surrounding areas

  • Europeans do not need visas 

  • Macau citizens do not need visas

  • Chinese citizens can obtain visas, process cited as "very simple and fast"

  • The project will include shopping and attempt to mix in Asian culture 

  • They will be rolling out online betting and gaming site which will open prior to the land based casino

  • They have plenty of financing available and have been approached by many firms and local banks that want to underwrite the financing on the project

Q & A

  • Project will be on the island of Santiago, the main commercial island, with the most people and visitation. 
  • Cite that they will tap into tourism junket business in Europe as a big opportunity 
  • There are 4 intl airports on CV, and their property is next to the biggest one, which is currently getting an upgrade
  • Caribbean feel to the island, it's not like the Maldives or Fiji 
  • Chow focused on the idea the Santiago could be a good spot for the VIP market, citing that business people travel in and out. Wealthy from Africa and Europe. 
  • They are seeking first mover advantages, by being the first to offer a integrated resort experience. Islands close by and will offer great experience for guests for day trips
  • They expect customers from the UK, the Netherlands, Angola, South Africa, Western Africa, South America (short flights)
  • Why Cape Verde? Opportunity to generate a new market in this part of the world, and could compliment and draw European gamblers and specifically all the Chinese people who have immigrated to Europe. 
  • Chow saying that there is potential for GGR to bigger than European casino market. 
  • Basically, there is no comp in the area.
  • Tax advantages are a huge for the bottom line
  • Continued to cite that they feel there is a need for a casino 
  • Question on Market size? EBITDA? ROIC? 50 tables 150 slots/EGT's - "EBITDA margin can be better than Macau"
  • Would not give any forecasts on EBITDA
  • ROIC - something starting with "2" and has to beat Macau which they are confident that it will
  • How will they finance the project?  As of now, they will seek a bank loan, term loan financing + a mix of corporate level financing 
  • How should the hotel perform? A lot of the hotel rooms can be sold - both non gaming EBITDA has potential to be very strong 
  • Chow has a very close relationship with the CV govt. 
  • Question about the project prior to the full opening:  Online/sports betting component and exclusivity, a major a plus. But they will not operate a temporary casino, Chow doesn't want to hurt the brand name before official opening.
  • Chow cited huge opportunity in being a leader in online gambling and sports betting on the island and in the region. 
  • For construction - Phase 1 shore zone, Phase 2 island zone - both should be done at the same 3 year period.  
  • Angola very relevant, because of the influx of Chinese companies and Chinese people there. 
  • Synergies from Macau for the new project? Chow mentioned that marketing will create the network, and Chow's network is strong and will leverage that in the future to bring customers to the project. Operational synergies exist. Govt. connection, hotel oprations synergies from the Macau properties. 
  • Chow calls Cape Verde the new Caribbean, because it is untouched and offers the same qualities. 
  • Online gaming exclusivity is huge. anyone from a country with legalized online gaming can clear through them. They cite it as an opportunity for online gaming around the world. 
  • No guidance when the online gaming will begin, but will definitely be before the land based casino. They would like to use it as a marketing tool for the resort. 
  • How big of a portion should the online gaming be to EBITDA? No projections. Land based gaming contribution tends to be the biggest, then online gaming, then regular hotel operations. 
  • Question on their balance sheet being stretched, needing for additional funding for these new projects and expansions?
  • Chow: "Fisherman's Wharf needs no more financing or funding efforts, and the second hotel is approved, and will be building it as fast is the labor market permits."
  • CV project should be heavily sought after in terms of debt financing, and they expect to finance very competitively on any future projects. 
  • For Macau they will not be laying off any workers but will be relocating workers around their existing properties after closing some of their VIP tables. 
  • Cites China stock market crash as potential to further erode junkets earnings and the Macau gaming market in general
  • Smoking ban? Chow doesn't think the government will put full ban on smoking and sees room for the government and casino operators to make a deal. 

 

 


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ATHN | WILL THEY MISS THE PHYSICIAN COUNT?

Takeaway: StreetAccount consensus estimates for Q2 net physician adds were just released and they look reasonable.

ATHN | WILL THEY MISS THE PHYSICIAN COUNT? - 2015 07 22 Net Doc Add II

overview

StreetAccount consensus estimates for Q2 net physician adds were just released and they look reasonable.  Relative to consensus, our estimate comes within a margin of error for athenaCollector and athenaClinicals, which are the most important products when gauging the health of the business.  We are ~500 lower for athenaCommunicator after adjusting our mix assumptions due to several quarters of coming in higher than actual results.  However, we don't think it will make a difference as our model is forecasting above consensus Sales and Non-GAAP EPS of $229.3 mill ($227.0 mill Consensus) and $0.30 ($0.25 Consensus), respectively.  Chart above above shows the build up and break down of how we arrived at the net physician count for the quarter.

 

We will get into the details of our process and provide a comprehensive review of our long thesis in a Best Idea Update Call tomorrow at 11:00 am ET.  As a reminder, the company will be reporting earnings after the close that day.

 

key metrics

  • athenaCollector
    • Consensus 1,697 vs HRM 1,642
  • athenaClinicals
    • Consensus 1,077 vs HRM 1,154
  • athenaCommunicator
    • Consensus 1,907 vs HRM 1,415

 

Please call or email with questions.

 

Thomas Tobin
Managing Director 

@HedgeyeHC

 

Andrew Freedman

Analyst

@HedgeyeHIT 


Cartoon of the Day: Bull vs. Bear

Cartoon of the Day: Bull vs. Bear - Bull and bear extra cartoon

"It’s probably different this time," Hedgeye CEO Keith McCullough wrote in an Early Look earlier this week. "Post a 6yr equity ramp shouldn’t you pay 351x earnings for Netflix or chase QQQs? I’m hearing the charts 'look good.' They did in 2000 and 2007 too."

 


P: Notes from WebIV Closing Arguments

Takeaway: We doubt anyone left thinking P had the upper hand yesterday, but what we learned is P is largely on its own, and SX is going for its throat

KEY POINTS

  1. ECONOMICS VS. LAW: Bulls vs. Bears: trying to prove that P has the better economic argument vs. considering the legal parameters of the Copyright Act that governs the WebIV proceeding.  During closing arguments yesterday, both SoundExhange (SX) and the Services (P included) each presented what could be viewed as compelling economic arguments depending on who you were rooting for. But the big difference is the legal arguments, with SX literally citing multiple passages from the Copyright Act stating that the copyright owner’s (the labels) rights takes precedent.  P’s only rebuttal here was that SX was being too literal, and asking the judges to operate outside of their mandated roles.
  2. P = ODD MAN OUT: The parties representing the “Services” are not all on the same side of the table. The NAB's priority is clearly on simulcast rates, which SX isn’t really challenging (NAB council made a point to call this out).  IHRT's core platform is terrestrial radio, and the focus of its WebIV filings are largely on simulcast as well.  Note that IHRT’s rate proposal is largely based on the iHeart-Warner deal, which we believe leverages IHRT's much larger terrestrial radio platform (link), which is outside the scope of WebIV.  However, the agreement touts the leverage terrestrial radio (by extension simulcast) has over the labels, which was probably IHRT's agenda.  We suspect all parties are tacitly horse trading; SX is yielding simulcast in exchange for less pushback from NAB/IHRT on webcasting, making P the odd man out.  
  3. LOSING THE KEY DEBATE: Does P have a basis to request lower ad-supported royalty rates (vs. subscription rates)? We've always contended that this debate has been both P’s weakest argument and where it has the most to lose.  P’s only basis is trying to use the Pandora-Merlin agreement as a benchmark, which SX spent much of its time yesterday attacking.  Note that SX already provided rebuttal testimony from the involved Merlin parties stating the agreement is a derivative of the Pureplay Agreement, which is inadmissible for WebIV.  Note that of all the major parties involved, P is the only one asking the judges to distinguish rates by how the copyright buyer chooses to monetize those tracks, which the judges of Web III Remand essentially ruled out (see link below for exact quote).  

 

Let us know if you have any questions, or would like to discuss in more detail.  

 

Hesham Shaaban, CFA

@HedgeyeInternet 

 

 

P: Losing the Critical Debate?

04/08/15 08:53 AM EDT

[click here]

 


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