Boris Yeltsin

Las Vegas Sands: Too Big to Fail?

Mark - I'm sorry to say this is superficial analysis. I've read some other blogs of yours which were good, but on LVS, please have some vision and do a bit more homework.

LVS is Asia's leading gaming company, with the best properties in Macau and Singapore. Forget Las Vegas. Within 1 year 85% of earnings will come from Asia, with the majority from Singapore which is set to become the most profitable casino in the world due to lower gaming taxes.

The analysts covering LVS are generally poor, and typically based in New York without much idea of Asia. Some of their forecasts, prepared in Oct '08 and during the March '09 low, are way-off compared to what their peers based in Singapore and HK have to say about the prospects for Singapore and Macau gaming. For example, many analysts are projecting US$300-600mn for LVS Singapore EBITDAR vs LVS's own forecast of US$1.2bn, or estimates of US$1bn or so for LVS's smaller Singapore competitor (Resorts World) according to CLSA - the leading institutional broker in Asia.

Macau alone is likely to generate US$500m in net income and be valued at US$5bn+ at IPO. In a few years, or less LVS, will likely be making US$2bn in annual net income, meaning the stock may be at 5x PE. So just wait a little and you'll soon enough see the analysts hyping the stock to $50+ (again).

If Adelson wanted to reduce gearing at LVS, he could very quickly - by issuing equity at the LVS listco level. You can rest assured there are plenty of cashed-up groups in Asia that would be glad to spare a US-taxpayer bail-out. But thankfully Adelson has ignored the analyst squeals for dilution as he does not want to reduce his stake, and he knows the banks are on board anyway. It doesn't help the share price to have hysterical headlines about LVS's gearing, but it does help longer-term returns for shareholders.

Ultimately, there are many willing commentators on LVS but very few people who have actually done serious financial homework. Not surprisingly, the average holding period on the stock right now is a mere 9 days - which is actually up from 5 days a couple of months ago, but still ridiculous. The stock is a plaything of daytraders, many of whom are short and continue to lose a lot of money. And yet short interest is still a massive 21% of free-float.

So yes, in my view, there is still plenty more upside until the average holding period rises and we see lots of posts at Seeking Alpha with enthusiastic BUY headlines given the opening of Singapore. By then of course the price will be much higher.

Greenlight's Einhorn: Buying S&P 500 and General Electric Puts

He has only bet 1.6% of his portfolio on the GE puts. This doesn't look like a high conviction bet. And I think he will prove to be wrong in any case.

The Fallacy of 'Money on the Sidelines'

Alex - you are right with much of what you say. But if you were writing to refute what I wrote, I was making a different point.

My point is simply that if aggregate cash (US household or otherwise) is moving into the stockmarket this will tend to push up prices. And especially so if traded free float and the willingness of holders to sell are both low. It is like the marginal impact of $1m of buying of illiquid small caps vs highly liquid bigcaps.

If $1 moves from cash into stocks, and traded volumes remains unchanged, logically stocks will go up. In theory, the whole market could be sold for almost nothing without moving cash balances but that is not the real world, and it would also involve rising volume. However, it would be difficult to move $4 trillion from cash into the stockmarket and to avoid paying well more than $4 trillion.

Comparing the market cap of the market to the potential buying power in the form of cash which is typically in the market makes sense.

High cash balances also impact interest rates, driving them down at the short end of the yield curve making stocks relatively more attractive given their higher yields. Warren Buffett has made similar arguments in the past if you prefer to listen to him.

I expect cash balances to decline, but even if I'm wrong and they don't, my point is simply that it is reasonable to expect that $1 of extra cash moving into the market will tend to be inflationary for stocks, and by more than $1, as sources of new selling volume will not exactly offset the incremental demand.

This is not a trivial point because it can lead to the "wealth effect" (of rising market cap of the stockmarket based on only a few months of trading) being magnified on the way up, just as has been magnified on the way down.






On Aug 05 06:50 PM Alex Trias wrote:

> Two points. First, what drives stock prices is the relative eagerness
> of buyers and sellers. "Cash on the sidelines" doesn't mean much
> more than maybe, those who have sold might want to buy again maybe.
> And it really doesn't indicate the relative eagerness of buyers verses
> sellers.
> Second, what does volume tell us? To move a company's stock price,
> it matters not whether one share a day trades, or one million shares
> a day trade. Assuming for the sake of argument that individual investors
> do pile into stocks, once the moment after they have bought shares,
> they are irrelevant to the stock price until they sell. All that
> matters to stock prices is that there is one person willing to sell
> low, or buy high. Whether American households participate en masse
> is sort of beside the point.
>
> What low volumes do is simply to exacerbate volatility since there
> are fewer dollars and minds at work. Which could make it more likely
> a market has gotten ahead of where it ought to be. Or maybe not -
> perhaps those investing today are really a microcosm of a broader
> population of investors who may, or may not, invest in the future.
>
> Either way, tough to draw any hard conclusions from what, if anything,
> "cash on the sidelines" and low volume indicates, and more importantly
> what, if anything, it suggests about future market performance.

The Fallacy of 'Money on the Sidelines'

Tyler - very interesting article, well done.

One issue -

I do think there is a problem concluding that there is a dollar for dollar relationship b/w the SPX mcap and MMFA. After all, $1 of buying can push up the SPX by multiples of that if trading volume is low. What matters is the impact of the incremental additional cash entering the stockmarket, and that depends on the level of traded free float.

I think a better chart to look at on Bloomberg is the ratio of MFFA Index to WCAUUS Index. This highlights to me there is still some way to go in this equity rally, which will benefit household net worth at a faster rate than a $ for $ logic suggests.

Investors Can Write Off GE Capital for the Next 5 Years

U.K. Consumer Confidence Rose to the Highest in a Year in July

By Brian Swint

Aug. 5 (Bloomberg) -- U.K. consumer confidence rose to the highest level in more than a year last month as house prices stopped falling, Nationwide Building Society said.

An index of sentiment climbed to 60 in July, the highest since May 2008 and up from 59 in June, Britain’s biggest customer-owned lender said in an e-mailed statement released today. TNS surveyed 1,000 people for Nationwide between June 22 and July 19.

The figures add to evidence that Britain has passed the worst of the recession. Bank of England policy makers tomorrow will decide whether the recovery is strong enough after five quarters of contraction for policy makers to ease off on their program of buying bonds with newly created money.

“Consumers might have been reassured by reports that the housing market may be starting to recover, and manufacturing output is no longer falling as rapidly as it was a few months ago,” Martin Gahbauer, Nationwide’s chief economist, said in the statement. “Consumers appear to be remaining cautious but not panicked by the economic climate.”

Shop-price inflation is slowing, helping purchasing power, the British Retail Consortium signaled in a separate report today. The annual rate of price gains in stores was 0.5 percent in June, the lowest in seven months. Annual gains in food prices slowed to 3.8 percent, and prices for non-food items fell 1.3 percent on the year, the BRC said.

Homeowner Optimism

About a fifth of Britons expect the economy to worsen in the next six months, compared with about half at the start of the year, Nationwide said. Homeowners expect the value of their properties to rise 0.5 percent in the next six months, the most since December 2007, the report showed.

Nationwide said last week that house prices rose in July for a third month. A manufacturing gauge based on a survey of factories climbed to 50.8, the highest since March 2008, from a revised 47.4 in June, the Chartered Institute of Purchasing and Supply and Markit said on Aug. 3.

Factory production probably fell for a second month in June, posting a 0.1 percent decline, according to the median of 25 economists in a Bloomberg News survey. The Office for National Statistics will publish that data at 9:30 a.m. today in London.

The U.K. economy contracted 0.8 percent in the second quarter after it shrank 2.4 percent in the previous three months. Consumers are less optimistic about making large purchases, Nationwide said.

Labor Market

A measure of hiring for permanent jobs fell in July for the first time since February, KPMG and the Recruitment and Employment Federation said in a separate report today. The gauge of permanent staff appointments by job consultants slipped to 46.1 from 48.6.

“We are cognizant of rising unemployment and constraints on consumer spending generally,” Ralph Topping, chief executive officer of William Hill Plc, told reporters yesterday. The U.K.’s second-biggest bookmaker forecast that full-year betting- shop profit would be lower than analysts predicted.

The Bank of England will decide tomorrow whether to extend its 125 billion pound ($211 billion) asset-purchase program. Economists are split on the outcome, with 21 out of 44 in a Bloomberg News survey predicting no expansion of the plan and the remainder forecasting that the bank will seek to spend at least another 25 billion pounds.

To contact the reporter on this story: Brian Swint in London at [e-mail].

Shorting Las Vegas

Mark - thanks. And well done on making money on LVS. I doubt many others on the short side would have fared so well over the past few days.

The stock is hugely volatile but within a year I expect it will be at least twice the current price. The short interest peaked last week at levels last seen when LVS looked like a possible bankruptcy risk. Best to wait until SI levels go down again before shorting; I'm sure you'll get another opportunity or two or three before before Singapore opens and the analysts scramble to upgrade their numbers.

It looks like Adelson is trying to renegotiate the Macau loan covenants and may not do an HK IPO at all if he can avoid it.

I wasn't so keen on Macau given concerns on competition but interestingly the opening of City of Dreams next door has actually helped the Venetian Macau, and if the surrounding Cotai area is developed by LVS (as Adelson is trying to) the whole area will be by far the best place to go in Macau. And it will be almost all owned by LVS - the next best thing to a regulatory monopoly.

I doubt China will do anything to terrible to LVS, more likely they will just allow gaming in other parts of China, creating more competition. By then, Cotai will have a big headstart.

Hopefully Adelson has learned some lessons on the dangers of leverage from the last few months. I'll still give him plenty of credit for being a visionary.

Boris

Short Interest Stocks - Three Distressed Investment Opportunities

I certainly agree re LVS and am a happy buyer at these levels.

To quantify the contrarian opportunity in LVS, the short interest is now a massive 23% of the free float. One of the highest on NYSE, which puts LVS in the company of AIG, Freddie Mac etc.. The short-selling crowd on LVS is really facing a serious risk of a squeeze if news suddenly comes out on a stake sale in LVS's Macau operations.

Las Vegas is certainly suffering, but the US is now a minority of LVS's revenues and earnings, and will become an even smaller contribution next year. "Las Vegas" Ssnds should really be renamed.

I recently visited both Macau and Singapore and Macau is doing fine, even if visitation is softer than last year, and LVS continues to gain market share in what is probably the best long-term market in the world. Already Macau is much more significant than the US in terms of earnings to LVS and that will only increase post Cotai, which will entrench LVS as the strongest player in Macau - a remarkable achievement by LVS in just a few short years post the removal of Stanley Ho's monopoly.

Right now LVS has a market cap of US$4.5bn, excluding warrant exercise. The equity value (not Enterprise Value...) that brokers believe is achievable at IPO in HK for the Macau assets alone is ~US$5bn. Yes, extraordinarily, more than LVS's current market cap. If you have have seen the China IPO market lately (eg, 200-500x oversubscriptions) or have seen GS IPOs fly in HK before you'll appreciate this is far from crazy. Even bearish UBS thinks the Macau assets alone may generate US$500m pa in net income in 2010.

Turning to Singapore, which just topped out the three hotel towers under construction at Marina Sands:

marinabaysands.com/

This may prove to be the most profitable casino in the world, given the duopoly structure, strategic position and much lower gaming taxes than Macau. Sands itself previously "suggested" US$1.2bn in annual EBITDA for Singapore, significantly more than the Venetian in Macau. See page 36-37 of the below:

library.corporate-ir.n...

Sands is going to wind up with the two best gaming assets in Asia - the Venetian/Cotai in Macau servicing China and Marina Sands servicing South East Asia and India. Even if the US is worthless, if LVS survives just a few more months, which I think is not in serious doubt (just look on Bloomberg at the current yield on their corporate bond), LVS is very, very cheap at these levels and could always sell assets if needed - eg via HK IPO or minority interest in Marina Sands.

The leading Analysts in the stock (Sanford Bernstein, ML and UBS) all expect LVS will avoid debt covenant breaches and the mean Analyst share price target is 53% above the current share price. And this is all notwithstanding very bearish forecasts for Marina Sands Singapore by the analysts (eg, US$300-600mn EBITDA), which I assure you will be wrong. Once Singapore is complete in Jan/Feb, LVS may be generating US$1bn of net income, meaning LVS may now be trading at 4.5x PE.

Adelson in a recent interview said he would be buying towels for the research analysts. To wipe the egg off their faces when it is shown how off they are. I'm betting on Adelson not the Analysts.

cnbc.com/id/158402...

Right now, LVS is a stock traded by US investors based on impressions of Las Vegas, and covered heavily NY analysts who are fairly clueless about Asia and in several cases prepared their forecasts back in October 08 and March this year, with the backdrop of Lehman collapsing etc. New research coverage and sources of buying are likely from Asia and I suggest you don't over-stay your welcome on the short-side.

Shorting Las Vegas

I should correct an error in my note above. I said that short interest as a percentage of free float was almost 20%. It is actually 23%, which makes this an even nicer potential short-squeeze.

Referring to the latest NYSE short interest data (see below), I calculate that of the top 100 shorted stocks on NYSE, there are only 4 stocks with higher short interest ratios as a percentage of free float than LVS. They are Freddie, AIG, Fannie, MGM and Citi. The last two are the only "non-zombies" of the 5 and have short interest ratios only slightly above LVS.

www.nyse.com/financial...

Shorting LVS looks like a crowded trade to me. Let's see.

Shorting Las Vegas

Mark - good luck with your shorting. I wish you well.

I'm long LVS and look forward to buying more if you and other shorts can drive down the price further.

But you should be aware of the bigger fundamental picture with Sands, especially given that short interest is almost 20% and newsflow may surprise on the Macau front soon if a PE deal is suddenly announced and the HK IPO aborted.

Negative sentiment towards Las Vegas and low US confidence may well continue to cause LVS to fall in the short-term. Las Vegas is truly suffering. But from the perspective of my, perhaps longer, investment horizon, that doesn't matter.

The US is now a minority of LVS's revenues and earnings, and will become an even smaller contribution next year. The company should really be renamed "Asia Sands" or perhaps just "Sands".

I recently visited both Macau and Singapore and can assure you that Macau is doing fine, even if visitation is softer than last year, and LVS continues to gain market share in what is probably the best long-term market in the world, as China becomes wealthier. Already Macau is much more significant than the US in terms of earnings to LVS and that will only increase post Cotai, which will entrench LVS as the strongest player in Macau - a remarkable achievement by LVS in just a few short years post the removal of Stanley Ho's monopoly.

Right now LVS has a market cap of US$4.5bn, excluding warrant exercise. The equity value (not Enterprise Value...) that brokers believe is achievable at IPO in HK for the Macau assets alone is ~US$5bn. Yes, extraordinaly, more than LVS's current market cap. If you have have seen the China IPO market lately (eg, 200-500x oversubscriptions) or have seen GS IPOs fly in HK before you'll appreciate this is far from crazy. Even bearish UBS thinks the Macau assets alone may generate US$500m pa in net income in 2010.

Turning to Singapore, which just topped out the three hotel towers under construction at Marina Sands:

www.marinabaysands.com/

This may prove to be the most profitable casino in the world, given the duopoly structure, strategic position and much lower gaming taxes than Macau. Sands itself previously "suggested" US$1.2bn in annual EBITDA for Singapore, significantly more than the Venetian in Macau. See page 36-37 of the below:

library.corporate-ir.n...

Sands is going to wind up with the two best gaming assets in Asia - the Venetian/Cotai in Macau servicing China and Marina Sands servicing South East Asia and India. Even if the US is worthless, if LVS survives just a few more months, which I think is not in serious doubt (just look on Bloomberg at the current yield on their corporate bond), LVS is very, very cheap at these levels and could always sell assets if needed - eg via HK IPO or minority interest in Marina Sands.

The leading Analysts in the stock (Sanford Bernstein, ML and UBS) all expect LVS will avoid debt covenant breaches and the mean Analyst share price target is 53% above the current share price. And this is all notwithstanding very bearish forecasts for Marina Sands Singapore by the analysts (eg, US$300-600mn EBITDA), which I assure you will be wrong. Once Singapore is complete in Jan/Feb, LVS may be generating US$1bn of net income, meaning LVS may now be trading at 4.5x PE.

Adelson in a recent interview said he would be buying towels for the research analysts. To wipe the egg off their faces when it is shown how off they are. I'm betting on Adelson not the Analysts.

www.cnbc.com/id/158402...

Right now, LVS is a stock traded by US investors based on impressions of Las Vegas, and covered heavily NY analysts who are fairly clueless about Asia and in several cases prepared their forecasts back in October 08 and March this year, with the backdrop of Lehman collapsing etc. New research coverage and sources of buying are likely from Asia and I suggest you don't over-stay your welcome on the short-side. Over-hyped Wynn may be a better way to play Las Vegas troubles.

Still, if you can help push LVS to back below $5 per share, you and I will both be glad. Adelson might start buying again too.

Boris

Thursday Outlook: Commodities, Global Markets

Best wishes to your wife Dave. Hope everything goes well.

Thursday Outlook: Commodities, Global Markets

Best wishes to your wife Dave. Hope everything goes well.

Casino Stocks Could Be a Long Term Jackpot

Gregory - one thing I don't agree with you on is your assertion that Wynn 'is clearly the best long-term pick'. I agree that Wynn has the best reputation and has effective management, however it is also priced accordingly. You may sleep more soundly knowing that everyone feels good about Wynn, and it will do fine versus the overall market, but I'm pretty sure that LVS will prove to be a much more profitable investment, even on a 5-10 year horizon, if purchased today.

Casino Stocks Could Be a Long Term Jackpot

Gregory - you may be right on the very short-term but it is a pretty hard thing to try to game, even as a short-term trader. The strength in LVS has been impressive. If one is nervous re the short term, I would suggest one stages ones purchases.

Casino Stocks Could Be a Long Term Jackpot

I agree with InvestBaboo (btw, is that your real name?). As you say in another post, there is so much cash on the sidelines, equities are inevitably going to go up. But rather than actually look at the money market mutual fund data people prefer to talk earnings expectations and Nouriel Roubini style about the macroeconomy (trillions "ov kreddit lowsses"). Fortunately, the stockmarket is not really that complicated.

Almost all of the sell-side Analysts covering LVS failed to call a buy at the bottom. Jeffries showed some courage, then JPM, but equity research analysts are right now a timid bunch, and effectively waiting for prices to rise before upping their forecasts. And then it will be via supposedly tweaking the terminal growth in their DCFs blah, blah, to justify the move. As Warren Buffett says: You pay a high price in the stockmarket for a cheery consensus.

I would not wait for the much anticipated pull-back before buying LVS. The crowd could be wrong, as it usually is.

Casino Stocks Could Be a Long Term Jackpot

An interesting article. And finally some comment on LVS that mentions Singapore. I recall seeing Jim Cramer make negative comment on LVS because of airport figures in Las Vegas; I think he since changed his mind on LVS... but for the wrong reasons.

Many investors, perhaps Cramer included, are eventually going to wake up and realise that LVS is actually an Asian gaming company with two of the best properties in Asia - the Venetian in Macao and Marina Sands in Singapore. Marina Sands could wind up becoming the most profitable casino in the world, generating US$1.2bn or so in annual EBITDA. Moreover, unlike Macao and Las Vegas, Singapore is likely to stay a duopoly for the next 30 years given Government restrictions on licenses. And with much lower gaming taxes, Marina Sands (which is due to open by YE or early next year), will be more profitable than the Venetian in Macao and far more profitable than the Venetian in Las Vegas.

The Venetian in Macao is nice, but compared to clean, safe, unpolluted Singapore, Macao is a pretty unattractive place. Singapore will capture more than its fair share of high roller traffic from China, in addition to the South-East Asian market and the growing Indian tourist flow through Singapore.

LVS is not going to go bust with no short term debt maturing until 2011. Once Bethlehem and Marina Sands are fully operational within the next 12 months, don't be surprised to find LVS back in favour and trading at a premium to Wynn.

Sheldon Adelson has said LVS will be a US$100 stock again one day. Eventually it may be, but in the next two years US$30-40 is very plausible. Just restoring LVS to its average historical ratio to Wynn would take LVS to $30 per share.