Las Vegas Sands: Sustainability Thesis Looking Better?

On Thursday, we officially passed the one-month mark since Las Vegas Sands (LVS) announced its utterly dilutive stock and warrant offering in an attempt to stave off bankruptcy. Considering the size of the deal and the audacity associated with bypassing the shareholders’ ability to have a say in the matter, investors should be pleased to see that we’ve now closed above the offering price of $5.50 on three of the past five days:

click to enlarge

I’ve overlayed the 10 & 20 dma (notice the cross on Thursday), which are the only moving averages that are relevant on this stock, which is still down over 94% on the year.

Sustainability Thesis Looking Better

Given the huge risk/reward imbalance with the company’s equity (of which Sheldon Adelson still owns over half), I wrote up a comprehensive sustainability study on the company. I saw mostly green lights into 2009, but still saw a general shortfall of $300m - $500m, which may be raised via a syndicate loan on retail properties or Macau land parcels. The market seems to be coming around to a future where LVS equity survives, as shares are up over 75% from the closing low on November 21.

While we’re still treading water on the overall cash flows for the next year, some big institutions have stepped up their investment in the company, as Fidelity disclosed a 15% position on Wednesday. I’d still like to see a $1-billion or so deal be closed on retail properties before the end of the year, as recent news out of Vegas is that gaming revenues are down for the tenth month in a row, and 26% year-over-year in November. Oh, by the way, November was officially the worst month on record at the Gaming Control Board.

Parting Thoughts

Given the structure of the loan covenants, the most important event of the next year is the opening of the Marina Bay in Singapore. The money’s already been spent, and LVS desperately needs to get some operating income flowing to make up for cash positions that will only be heading down from here.

I'm also holding out hope that China might relax the Macau visa restrictions, but this isn’t the year for lengthy Christmas lists. We continue to hold LVS in the Secular Trends Portfolio, understanding that we’re likely to see more short-term volatility here than at the blackjack tables.

Disclosure: Author does not hold a position in companies mentioned; LVS shares are held in EpiphanyInvesting Secular Trends Portfolio.

Comments

[investor88:]

A good article with thoughtful analysis of prospects of Sands. I may be wrong but given what is going around the financial world I don't have the conviction to buy Sands although I may come to regret this view. Companies with high debt seems risky in this unstable financial climate.

2008 Dec 12 10:23 AM

[Ryan Barnes:]

This is definitely a high risk proposition, especially when using real estate values as the crux of an investment thesis. But the upside (a 5 or 10-bagger) could be realized quickly enough (3-5 years) to make the risk/reward favorable for a small allocation within a broader portfolio.

2008 Dec 12 02:51 PM

[Filbert Mad:]

Any1 who read tis shld dive into tis pit hole LVS asap! For it will soon erupt again into a mountain...not wit dirt but cold hard cash!! Wonder if I shld say tis...'evil and good forces' are working hand in hand to perform tis miracle. Believe it or not...it's my words but ur action.

2008 Dec 15 02:55 PM