If Macau dominates each day’s headlines, there’s a reason. Gaming investors care more about it than anything else.
At least that’s the conclusion to draw from a recent note by Vitaly Umansky, a Bernstein equity analyst.
The five most-asked questions during investor meetings across the US, Canada and Europe pertained to Macau, Umansky reported.
Investor interest is understandable. US and Hong Kong-listed stocks of Macau casino operators have a combined market capitalization of around $170 billion. That’s a lot of money in the relatively small gaming industry. Perhaps more important, it’s a lot less than it was just months ago when it topped out at more than $250 million. In other words, investors have lost more than $80 billion on the stocks, making them understandably nervous.
The overall negative investor sentiment on the stocks is more related to concerns about the Chinese economy and political climate rather than a slowdown in gaming itself, Umansky said.
The negative sentiment is being reinforced by a bearish 2019 outlook. Analysts factor in the Chinese economy, the smoking ban coming to VIP gaming rooms on New Year’s Day and expectations that junket operators will be cautious in lending to players. They see those factors more than offsetting positives, such as the new bridge connecting Macau to Hong Kong and the Chinese mainland.
Indeed, Karen Tang of Deutsche Bank forecasts an actual decline in gaming revenues next year, projecting VIP revenues to fall 10 percent and mass-market revenues to fall 1 percent.
The consensus view that revenues will rise 4 percent assumes no VIP decline, and investors are hoping for mass-market growth in the low teens. Both are wishful thinking, Tang said.
Umansky listed the five most frequently asked questions:
• What are the risks to concession renewals?
• What has caused the recent downturn?
• What will be the impact of next year’s smoking ban?
• What are the upcoming infrastructure developments?
• What are the effects of capacity constraints and new openings in coming years?
He then set about supplying his answers and came up with a more optimistic outlook, including the belief that gaming concessions will be renewed, and noting that while the Chinese economy is slowing, it is still growing.
The result: he sees 5 percent revenue growth next year and a rebound in 2020.
In a segment of the gaming industry worth $170 billion to shareholders even at its low point, that equates to a lot of investor interest.
Where Does Gavin Isaacs Land?
Gavin Isaacs might be the most popular executive in the gaming industry.
Wherever he has gone since landing in the U.S. nearly two decades ago—heading Aristocrat in the Americas, COO at Bally’s, CEO of Shuffle Master and then Scientific Games—the former Australian has brought energy and achieved success.
Now nearing the end of his non-compete agreement with Sci Games, the speculation about where Isaacs will go next is a popular topic of conversation.
The publication Intergame reported that one possible landing spot is Playtech, the London-listed online gaming technology and games provider with big US ambitions that Isaacs is well fitted to fulfill.
Others have suggested Isaacs, who has spent his career on the supplier side of the gaming industry, might want to take on the fresh challenge of running a casino company.
There is no question that Isaacs, just 53 years old despite his long experience, wants to be in on the action. Given his track record, many investors will likely follow.
