21 Oct: LVS: desperately seeking visibility

Las Vegas Sands Q3, Penn National and IGT analyst updates +More

Oct 21, 2021

Good morning. The problems being faced by operators in Macau and Singapore are the focus today with the results from Las Vegas Sands showing that recent Covid cases are halting what should be a Las vegas-style recovery as and when the pandemic subsides. Meanwhile, Morgan Stanley has resumed coverage of Penn National Gaming, seeing it as a “key beneficiary” of US gaming and sports-betting growth.

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Las Vegas Sands Q321

The top line

Revenue rose 92.2% YoY to $857m while adjusted EBITDA came in at $47m vs. a loss of $163m in Q320.
As of the end of September LVS had $1.64bn of cash on its balance sheet and access to $3.93bn of available credit.

The shape of a pear: On the call, CEO Rob Goldstein said the company remained “confident in the eventual recovery in Macau and Singapore” but as it stands there is no visibility on timings. While in Singapore there are signs of an opening up of international travel from some key markets, in Macau the best the company could say was that its “considerable” investments “continue to take shape”.

Storm warning: Grant Chum, COO of Sands China, noted the impact of continuing Covid cases in China and local cases in Macau in September halting any progress towards reopening and impacting Golden Week in October. On the upside, Goldstein noted that vaccination rates in Asia were now above the US, adding that the recovery in Las Vegas was the “blueprint” for an Asian rebound, adding that it was “inevitable”.

“We just know when it does happen, it’s going to be very powerful,” Goldstein added. “It’s going to be quite a storm of activity over there.”

Old faithful: As for the ongoing concession renewal process and recent government interventions, Goldstein said he had “faith in the process”. “After two decades of being there, we’ve never found the government to be not thoughtful,” he added. Asked bluntly whether he could envision LVS not operating in Macau due to an adverse Chinese government, Goldstein said he couldn’t see such a scenario playing out. “I see no chance of that whatsoever.”

“We’re assuming that the process will be fair and equal and we’re also assuming that they want us to invest as well,” said Goldstein. “The government wants to see growth in Macau.”

Drop in the ocean: As for digital, COO Pat Dumont said the company was intent on “investing for the future” but offered little by way of further guidance. “You key some of the valuations that the market is giving to certain areas today,” he said. “We think it’s very compelling, especially for the long term.” He indicated that early-stage investments would be the focus. Analysts at Deutsche Bank suggested LVS was unlikely to make a “big splash with an outsized acquisition”.

“I don’t know that we’ll necessarily look at something that’s transformational right away,” Dumont added. “That’s something that we may consider in the future depending on where things go and what market opportunity we see.”

Challenge accepted: Jefferies noted that conditions remain challenging for LVS, suggesting the overall corporate and growth strategy in new markets and digital “remain hard to value”. Still, Macquarie suggested the company remains “best-positioned” when it comes to the Macau and Singapore recoveries, as and when they happen.

Penn National Gaming analyst update

Scores on the doors: Morgan Stanley has resumed coverage of Penn National Gaming following the completion of the acquisition of Score Media and Gaming, suggesting it will benefit from the “inflection in US casino revenue” and further sports-betting legalization. However, the equal rating reflects doubts about the continued lack of technology infrastructure to “compete with other leading sports-betting operators as the market matures past the initial customer acquisition stage... into the phase where product matters more”.

IGT analyst update

Good read: Credit Suisse viewed the likely listing of Scientific Games’ lottery unit on the Australian Stock Exchange as a positive read-across for IGT. According to Bloomberg, SG is set to float its lottery business on the ASX in an operation that could raise around A$4bn for the company and value it at around 14x EBITDA. The Credit Suisse analysts said this was positive for IGT due to the valuation discrepancy between IGT at 7-8x EBITDA and the SG lottery multiple of 13-18x EBITDA.

Newlines

Schtop: Payment service providers Skrill, Neteller, Trustly and popular Dutch payment method iDEAL will no longer offer their services to unlicensed gambling operators that continue to accept bets from Dutch players. The regulator KSA has the power to order PSPs to stop processing payments from Dutch players.

Drive-by investment: DraftKings’ venture capital firm Drive by DraftKings has raised $60m as part of its first venture fund. The company said the fund was oversubscribed by 20%. As was noted by WE+M, $160m of money has been raised by various venture capital funds looking for sports-betting and gaming-related growth company investments in the US right now.

Changes: Engine Media has changed its corporate name to Engine Gaming and Media to reflect its focus on esports, gaming and ”next-generation media solutions”. The company said the name change was “an important step in highlighting our gaming DNA”.