How do you grow when you’re all grown up?
Las Vegas Sands is setting out to show us.
LVS is a company that, at present, has no big growth opportunities. That would change dramatically if Japan passes reasonable casino implementing legislation and LVS gets a license there. But, for the time being, LVS looks pretty mature.
LVS also looks like the well-managed gaming blue chip that continues to return growing value to investors. Consider:
• With EBITDA of $4.5 billion and growing, and free cash flow approaching $3 billion a year, LVS is rewarding shareholders with dividends and share repurchases.
LVS has announced a modest increase in dividends for next year to $3 a share, a healthy 4.8 percent yield.
The number of shares outstanding is declining around one million per quarter as LVS spends $300 million to $400 million a year opportunistically. That, obviously, grows earnings per share.
• Balance sheet. LVS has net debt of $7.7 billion and a debt-to-EBITDA ratio of just 1.6 times. Small amounts of debt are due over the next couple of years. In other words, the already strong ratios will further improve as EBITDA grows, and, if LVS decides, to pay down some debt.
The balance sheet leaves plenty of financing opportunity if Japan or some other major opportunities come along.
• Selective expansion. While it doesn’t have new casinos to open, LVS does intend to grow. It announced $1.1 billion in Macau projects that will add 1.7 million square feet to casinos, hotel and meetings and convention space.
The idea is to upgrade Sands Cotai Central into a must-see London-themed resort to build the base mass-market business, which is Macau’s highest-margin segment. As an example of how that is done, LVS notes that hotel room rates at Sands Cotai Central are just half of neighboring Venetian and renovations are intended to level them up to Venetian prices.
In addition, the Macau projects include adding 350 luxury suites at St. Regis and 295 at Four Seasons to draw premium mass-market customers, the fastest-growing segment in Macau.
• Appreciating assets. LVS shopping malls in Macau and Singapore continue to grow. Third quarter operating profit rose 8.8 percent to $570 million over last year.
The malls thus provide both growth now and a means to help finance a future mega resort in Japan or elsewhere if sold for their billions of dollars in value.
Put it all together and LVS can be a steady grower of dividends and stock appreciation even without new jurisdictions.
However, LVS has a hoped-for kicker—the continuing rapid growth of China.
Chinese out-bound tourism is growing 11 percent a year, and the Chinese middle class is huge and growing.
Further, the region near Macau is developing especially rapidly as adjacent Hengqin Island transforms into a major non-gaming tourism destination and the nearby Mainland provinces unite for economic development. Next year, Macau will become a convenient car ride away from the Mainland and from Hong Kong, as well as its major airport, when the bridge opens connecting Mainland to Hong Kong to Macau.
Thus, Las Vegas Sands is about as good a balance between shareholder returns and prospective growth as there is in gaming. And that doesn’t include the possibility of Japan.
The one caveat on the Macau story—and Macau provides 55 percent of LVS’ property EBITDA—is the terms that Macau government will extract from casino companies in coming years as gaming concession renewals are negotiated.
That could have a significant effect, but Macau also knows it is in an increasingly competitive environment, a factor that should moderate government expectations for what it can extract.
