Placing My Chips on Las Vegas Sands

Las Vegas Sands (LVS) is our one truly speculative fare in the portfolio - after sitting on the precipice of potential default, banks swooped in [Apr 22, 2009: Wynn Resorts, Las Vegas Sands Amend Credit Terms] and helped both LVS and MGM Mirage (MGM) live despite yawning debt loads. Las Vegas casinos was actually a group I was targeting 2 years ago as one of our canary in the coal mines when CNBC pundits and government officials were denying a recession was possible - while we were saying the house and ATM driven, conspicuous consumption era was about to hit the wall. [Oct 3, 2007: A Top in Casino Names? Wynn and Las Vegas Sands] Unfortunately, at that time we could not short individual equities, so we could only watch from afar as many of these names fell 90%+ versus October 07.

But now it's a new day and almost every large corporation is deemed too big to fail. (Small business? No one cares about you) So we have to invest with the central planning commission government; amazingly banks which themselves were on the cliff of failing found it in their hearts to adjust loan terms to keep these big casinos alive. [Sep 3, 2009: Las Vegas Sands - Too Big to Fail?]

At this point, we only have about a 1% exposure in LVS since the day-to-day volatility is immense and the stock temporarily broke support. This is not really a name you can have very good risk controls over, since the daily fluctuations will ruin almost any strategy. The chart is a bit misleading because after Thursday's 12% gains, the stock added quite a bit more in after hours once earnings came out mostly on the back of CEO Sheldon Adelson's comments about "bottoming" business activity. The fact that CEO phrases like this are still moving stocks 10% at a time is... well, says a lot about the market nowadays. The stock is in the mid $16s in the after hours session.

Effectively owning Las Vegas Sands is almost like a long dated call option; unlike MGM which is opening its huge project in America (City Center), LVS's future lies in Asia both with a Macau property and a new casino in Singapore. All things being equal (MGM actually has even more debt than LVS) I'd rather place my chips (pun intended) with the company whose future prospects lean to Asia. On that note we have word overnight that LVS has received approval to list its Macau unit in Hong Kong - should help them raise a ton of cash.

• Las Vegas Sands (LVS) and China's Minsheng Banking Corp have won approval from the Hong Kong stock exchange for more than $6 billion in combined initial public offerings, sources said on Friday, as the companies try to cash in on an IPO window that may be slowly shutting.
• Las Vegas Sands plans to raise $2 to $3 billion by listing the gaming company's Macau unit on the Hong Kong exchange, sources said. Sands will kick off pre-marketing next week and start its marketing roadshow on Nov. 9, with a trading debut set for the end of November, according to sources with direct knowledge of the deal.
• The gaming and casino company run by Sheldon Adelson has struggled with a heavy debt load, and is looking to seize on an opportunity to have a publicly traded division in Hong Kong at a time when the IPO window is still open.

Back to earnings...

Via AP:

• Casino operator Las Vegas Sands Corp. on Thursday reported a larger third-quarter loss as gambling markets continued to struggle, taxes increased and the company pressed ahead on developing a resort in Singapore.
• The Las Vegas-based company led by billionaire Sheldon Adelson benefited from more gamblers visiting Macau, the Chinese gambling enclave, but was hurt in its home market of Las Vegas where bettors have stayed away from tables and rooms have been less profitable.
• Las Vegas Sands posted a loss of $123 million, or 19 cents per share, for the three months ended Sept. 30. It said those results were hurt by increased income tax expenses, which cost the company $73.7 million. The results compared with a loss of $32.2 million, or 9 cents per share, a year earlier.

But as our readers know, to make the stock market cheap, we have to ignore many "expenses" since apparently they are imaginary. So a 19 cent loss turns into a 3 cent gain, presto magic.

• The company said its adjusted income -- which does not include many one-time items including the taxes, interest expenses or stock dividends -- totaled $20.1 million, a profit of 3 cents per share. That beat analyst expectations for losses of one penny per share, according to a Thomson Reuters poll.
• Its revenue rose 3 percent to $1.14 billion from $1.11 billion during the same quarter last year, but came in slightly shy of analysts' $1.17 billion estimate.

The Las Vegas exposure continues to suck wind...

• New casinos in Bethlehem, Pa., and Macau helped the company grow its overall gambling revenue more than $100 million to $908 million. But casino revenue at its Venetian and Palazzo resorts on the Las Vegas Strip fell to $99 million from $113.2 million a year earlier.
• Sands' revenue fell in food and beverage, hotel rooms and retail, while the company's overall expenses rose slightly.
• "It looks like they exceeded expectations in Macau, but they got destroyed in Las Vegas," said Susquehanna Financial analyst Robert LaFleur.

But never mind the numbers, the CEO provides happy talk and we can bid up the stock...

• Adelson told investors he was seeing strong signs that bad times might be turning around in Las Vegas because of a return of convention business and group bookings.
• "Just like night follows day and day follows night, there are peaks and valleys throughout the economic cycle and virtually everything in life," Adelson said. "There is no doubt whatsoever that the economy is returning and will return."

Who knew? Sheldon's a philosopher to boot....

Not as much "green shootery" coming from his peers...

• Several large Las Vegas-based casino companies have reported this week that they are struggling as consumers remain conservative in their spending, especially on leisure and gambling.

• Rob Goldstein, a Sands executive vice president in charge of operating its Las Vegas properties, said the company was gradually increasing its room rates and trying to avoid price cuts generally made to keep rooms filled.
• Rooms cost more than $170 on average during the quarter at the Venetian and Palazzo, though slightly more at the Palazzo. The rooms were just under 90 percent occupied for the quarte
• ... rates for leisure travel are also beginning to firm, particularly on the weekends. (obviously at some point supply finds demand - market discovery... hard to believe that still exists in America with what we see on a daily basis from our government and central bank)
• The company said it is continuing to cut costs but already has made 90 percent of the cuts it plans; in all, the cuts are to save the company $500 million per year.

And the elephant in the room...

• Sands also is working to lower its $11.76 billion in debt as of Sept. 30 by raising capital, selling noncore assets and cutting costs at its resorts.

[Sep 24, 2009: Starter Stake in Las Vegas Sands]

[Jul 31, 2009: Las Vegas Sands Disappoints Again]

[Feb 5, 2009: Jaw Dropping Action in Casinos]

Long Las Vegas Sands in fund; no personal position

Comments

[Ricard:]

"So we have to invest with the central planning commission (crossed out) government"

LOL...

Congrats on your LVS position. I was hoping it would dip back down to around 10 again before drawing from this well. Seems I will be out of luck.

Any thoughts about that debt position?

Nov 01 06:31 PM

[TraderMark:]

Ricard
if the market really sells off LVS will be in the single digits again - you can be patient.

Debt is enormous but banks dont seem to want to take losses so they will just kick the can and keep extending it appears. If MGM is ok, LVS is far better off.

Nov 01 07:51 PM

[Ricard:]

Thanks, and good luck with your eventual position.


On Nov 01 07:51 PM TraderMark wrote:

> Ricard
> if the market really sells off LVS will be in the single digits again
> - you can be patient.
>
> Debt is enormous but banks dont seem to want to take losses so they
> will just kick the can and keep extending it appears. If MGM is
> ok, LVS is far better off.

Nov 01 10:01 PM

[mna:]

I have to say I rolled my eyes when I saw the pun in the title. But, I have to thank you for a treasure trove of stats and other useful info in the article about LVS. I invested in LVS at $3, believing that core assets were tremendously undervalued, but I got out at ~$9, because at 9 the stock wasn't that undervalued anymore, and I was afraid of another round of dilutive fund raising.

That said, I still think LVS has good value (if a little speculative), and I'd invest more if the pure Macau offering's actually cheap. I also think the Singapore property's gonna be huge, and potential game changer. Sad to say this, but I kinda wish they would divest the Vegas business, retire some debt, and focus on Asia. A pure Asia gaming play would be highly valued by investors, and would unlock the potential value inside the company, as the Wynn Macau spinoff has already proven.

Nov 02 12:27 AM

[TraderMark:]

mna, nice investment/trade - there is nothing wrong with locking in gains, especially excellent ones such as as that, in such a short period of time. If you find 1-2 trades a year that yield such a return you should be thrilled. I was more of a doubter, and thought bankruptcy was an option but I was wrong. Hopefully Singapore helps a lot in the next 12-36 months, and Hong Kong IPO should help get rid of some of that debt.


On Nov 02 12:27 AM mna wrote:

> I have to say I rolled my eyes when I saw the pun in the title.
> But, I have to thank you for a treasure trove of stats and other
> useful info in the article about LVS. I invested in LVS at $3, believing
> that core assets were tremendously undervalued, but I got out at
> ~$9, because at 9 the stock wasn't that undervalued anymore, and
> I was afraid of another round of dilutive fund raising.
>
> That said, I still think LVS has good value (if a little speculative),
> and I'd invest more if the pure Macau offering's actually cheap.
> I also think the Singapore property's gonna be huge, and potential
> game changer. Sad to say this, but I kinda wish they would divest
> the Vegas business, retire some debt, and focus on Asia. A pure
> Asia gaming play would be highly valued by investors, and would unlock
> the potential value inside the company, as the Wynn Macau spinoff
> has already proven.

Nov 02 09:40 AM

[mna:]

Yeah, bankruptcy was certainly forseeable back in March for LVS. It was a risky bet, no ifs and buts about it. But I thought the risk/reward was too much to pass up. It was basically like a coin flip: tails you lose 100%, but heads you gain 200%. I just got lucky. I personally think Singapore's gonna singlehandedly turn this company around. Near monopoly for gaming in a largely wealthy ethnic chinese region spells huge profits.


On Nov 02 09:40 AM TraderMark wrote:

> mna, nice investment/trade - there is nothing wrong with locking
> in gains, especially excellent ones such as as that, in such a short
> period of time. If you find 1-2 trades a year that yield such a
> return you should be thrilled. I was more of a doubter, and thought
> bankruptcy was an option but I was wrong. Hopefully Singapore helps
> a lot in the next 12-36 months, and Hong Kong IPO should help get
> rid of some of that debt.

Nov 02 01:29 PM