Happy Thanksgiving from GGB; Newsletter Returns December 4


Disappointing table-game revenue made investors jump off Macau stocks, thinking it was the end of the big run. But great results in March demonstrated it was just a hiccup, and now investors are scrambling back on the bandwagon.

Last week, we wrote about the seemingly endless run up in Macau casino stocks having been broken by one week of disappointing table game revenue, and evidence that, this time, the Chinese economy looks like it really might be slowing significantly.

We couched our language with the qualifier that our comments were based on prices “as of this writing,” knowing there are several days between when we compose this column and when it gets posted.

And a good qualifier it was as. No sooner had the ink dried—or whatever passes for ink in this electronic world—then stock prices rebounded.

In three short days, they had regained two-thirds of what had been lost. Las Vegas Sands jumped 7 percent, Wynn 10 percent and Melco Crown 15 percent.

The reason? The next week’s release of Macau revenues showed a rebound.

So investors who jumped ship based on one disappointing week scrambled back on based on one week of rebound.

Actually, investing isn’t the word that applies to such reactions.

We also noted last week that of the nine casino operator stocks—the six concession holders and the three Macau subsidiaries of LVS, WYNN and MGM Resorts—we thought that prices had come down to reasonable, though not cheap, levels on LVS and WYNN.

As such, their higher prices would appear more likely to stick, though the way investor sentiment turns so quickly, that is far from assured.

Another way to look at it is to read the weekly revenue numbers out of Macau and trade the stocks. But if you do, make sure you’re staying ahead of the market reaction.

April 1 bought the start of a new quarter, meaning that first quarter earnings will be released soon.

That, in turn, means that companies will be hosting conference calls to discuss why they hit or missed earnings expectations.

And, on each call, executives will offer, and if not will be asked about, business trends so far in the new quarter.

Their answers to that question will be listened to especially carefully this time around for two reasons:

• Severe winter weather killed business in northern markets and even caused some short-term casino closings as far south as the Mississippi Gulf Coast.

• Casino revenues have lagged the economic recovery raising the concern that the industry has matured.

So, the hope is that executives will observe that business is bouncing back, both now that better weather has returned, and because those recovering consumers are feeling freer to spend their money on entertainment.

More and more data suggest the economy is getting stronger faster, though there is always the caution that it isn’t quite peppy yet.

The question is whether that improvement translates into higher gaming revenues, and when.

Articles by Author: Frank Fantini

Frank Fantini is principal at Fantini Advisors, investors and consultants with a focus on gaming.