Happy Thanksgiving from GGB; Newsletter Returns December 4

FANTINI’S FINANCE: Comeback or Comedown?

Regional casinos and Las Vegas integrated resorts are making a nice recovery in the past couple of years, but when can we expect the Macau casinos to turn around, and when the heck is that replacement cycle going to kick in for slot makers?

First quarter earnings season is about to begin and will probably be important more for speculation about the future than for what happened in the quarter.

What happened is mostly known:

• U.S. regional casino markets continued their recoveries.

• Ditto Las Vegas.

• The decline of Macau gaming revenues slowed and perhaps bottomed.

• Conditions for gaming suppliers continued to be tepid.

It’s safe to say that, when all reports are in, we’ll find that the first quarter was pretty unexciting and unsurprising, and that there have been worse periods than steady-as-she-goes recovery in the US.

Having said that, here are some things to look for:

Regional gaming. What’s the future in the Oil Patch now that low depressed drilling activity is several months old? To date, the casinos of Louisiana haven’t seen much of an impact. Will that hold?

Likewise, Ohio has been through its expansion so the era of cannibalization in the Buckeye State and nearby properties in Indiana, West Virginia and Pennsylvania should be over. What’s the outlook in this new, more mature environment?

Particularly, consider Eldorado, which now has three properties in the OH-PA-WV region and thinks it can improve results at all of them.

Las Vegas. Boyd could be a triple play: regional growth combined with recoveries in the Las Vegas locals and downtown LV markets. Heck, make that a quadruple play by throwing in Borgata, the Energizer Bunny® of Atlantic City.

Boyd is never the most boisterous or colorful of casino operators when tooting its own horn, but it could be the sleeper among them.

Las Vegas Strip. Let’s see the market improvements translate into significant bottom line improvements.

That is important for Las Vegas Sands and Wynn, which, for so long, glided higher on being Asian plays. It’s also important for MGM Resorts, which has been long on promise for such an extended amount of time and needs to bring it to the bottom line.

Finally, Caesars, under the new leadership of CEO Mark Frissora, gets to show his management acumen, even though limited still by debt and the digression of the company’s long and involved restructuring struggle.

Macau. Las Vegas Sands, Wynn and MGM Resorts all have big resort openings that keep getting pushed back, but which are finally just months away from opening.

They will add significant new capacity in an environment where Macau’s decline has slowed but not necessarily stopped.

Each company will be optimistic about its project’s prospective impact: Wynn expects to take market share; LVS expects the Parisian will attract the mass-market customer much as its faux European sister, Venetian; MGM hopes to benefit by a tripling of capacity.

The reality so far has been that touted openings Galaxy II and Melco Crown’s Studio City have not grown the market, so how much can we realistically expect WYNN, LVS and MGM to do so?

WYNN put out some very bullish and specific numbers on its pending Wynn Palace. It will be interesting to see whether LVS and MGM will try to quantify the impact of their new properties.

Finally, how well can the operators practice cost control in an environment where the government is expecting them to take care of its citizen employees in a declining market?

Suppliers. Do companies see their casino customers finally loosening up on capital spending, and how much will increased play on their leased machines flow through as higher revenues?

The little guys. Perhaps the most exciting opportunities in gaming are in the small casino operators that, by virtue of their small stock float, might be of interest more to retail investors and funds focusing on small caps.

Isle of Capri is the biggest of them and can benefit from the rising regional tide.

Others with special stories are Monarch, Eldorado, Golden and Full House Resorts.

We’ll be watching closely for break outs.

Articles by Author: Frank Fantini

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