There was hardly anything to cheer about in the gambling industry last week. As expected, Macau gross gaming revenues declined at a double-digit rate for the month of November. After declining in single digits for three consecutive months beginning June, revenues had declined 11.7% and 23.2% in Sep and Oct 2014, respectively.
Iao Kun Group Holding Company Ltd. (IKGH) disappointed investors by posting its second consecutive quarterly loss. Caesars Entertainment Corp. (CZR), on the other hand, is facing objections from creditors regarding its plan to convert Caesars Entertainment Operating Co. (CEOC) into a real estate investment trust (REIT). This pessimism was partly offset by Isle of Capri Casinos, Inc.’s (ISLE) fiscal second quarter 2015 results that beat the Zacks Consensus Estimate on both counts. (Read earlier week’s development: Gambling Stock Round Up for Nov 24, 2014)
Recap of the Week’s Important Stories:
1. According to Macau's Gaming Inspection and Coordination Bureau, revenues for the month of November nosedived 19.6% to 24.3 billion patacas – marking the sixth consecutive monthly decline this year. This slump reflects a slowdown in Macau as a result of high-stake gamblers curtailing spending amid a cooling Chinese economy. Also, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on high rollers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau.
Meanwhile, the political unrest and pro-democracy demonstrations in Hong Kong are compounding woes. Per analysts, the effect of the smoking ban on mass market gaming floors in October had been negligible. (Read More: Macau November Revenues Nosedive, 2015 Outlook Weak)
2. Iao Kun Group Holding posted a loss of 2 cents per share in the third quarter that compared unfavorably with the year-ago earnings of 16 cents. The significant downside reflects lower revenues and higher expenses. However, it was narrower than the Zacks Consensus Estimate of a loss of 5 cents per share.
Net revenue of $52.0 million declined 15% year over year and missed the Zacks Consensus Estimate of $57.0 million by 8.8%. The downside reflects a decline in win rate, slower revenue growth of VIP baccarat and an economic downturn and tightening of credit in mainland China, where the majority of Iao Kun Group’s VIP gaming patrons reside. Share price plunged 3% in response as the company posted a loss for the second consecutive quarter and lowered its expectation for 2014 Rolling Chip turnover. (Read More: Iao Kun Group Holding Shares Plunge on Q3 Loss)
The company also announced that its Rolling Chip turnover for the month of November had declined 30% year over year to $1.05 billion.
3. Isle of Capri Casinos posted fiscal second quarter 2015 adjusted earnings of 2 cents per share that compared favorably with the year-ago loss of 21 cents per share and the Zacks Consensus Estimate of a loss of 3 cents.
Net revenue of $238.9 million beat the Zacks Consensus Estimate of $233 million by 2.5% and went up 3% year over year. The upside was driven by an increase in revenues from casino properties in Colorado, Florida, Pennsylvania, and Missouri. Share price of this St. Louis-based gaming and entertainment company was up 4.7% post the announcement of results.
4. Caesars Entertainment is facing opposition from creditors regarding its plan to convert Caesars Entertainment Operating Co. into a REIT. Senior lenders and bondholders are considering whether to back a plan that would convert the unit into a REIT owned by the creditors but managed by a different Caesars entity.
The disagreement over the conversion plan for CEOC and other terms of the restructuring have so far prevented Caesars from getting support from senior creditors. Two weeks back, Caesars Entertainment had presented a plan to its creditors to restructure the obligations of its indebted unit. (Read: Will Caesars Entertainment's REIT Plan Offset Debt Issue?)
5. Full House Resorts Inc. (FLL) has entered into a favorable agreement with a group of shareholders to increase the number of board members to nine from five while accepting a few resignations. The resignations have been filled along with the appointment of Daniel R. Lee as the new Chief Executive Officer. Lee who was previously the Chairman and Chief Executive Officer of Pinnacle Entertainment Inc. (PNK), another casino company, will replace Andre Hilliou.
Performance
Share prices of most of the companies declined over the last five trading sessions with the highest decline of 8.2% recorded by Wynn Resorts Ltd. (WYNN), followed by Las Vegas Sands Corp. (LVS) that declined 7%. Not surprisingly, share price of other companies such as MGM Resorts International and Melco Crown Entertainment Ltd. that also operate in Macau declined owing to the weak outlook for the region.
Unfortunately, given the timing of the Chinese New Year in 2015 on Feb 19 (versus Jan 31 in 2014), some analysts once again expect a double-digit decline in the first month of the New Year. In fact, no improvement is expected until the second quarter of 2015.
Over the last six months, share price of most of the gambling stocks lost value with Melco Crown Entertainment and Boyd Gaming Corp. witnessing the maximum decline of 22.2% and 15.7%, respectively.
|
Company |
Last Week |
Last 6 months |
|
WYNN |
-8.2% |
-11.4% |
|
LVS |
-7% |
-14% |
|
MGM |
-4% |
-10.3% |
|
MPEL |
-3% |
-22.2% |
|
CACQ |
-1.5% |
-14.8% |
|
BYD |
-2.3% |
-15.7% |
|
CZR |
-6.5% |
-8.2% |
What’s Next in the Gambling World?
Since no major development is expected next week, the performance of gambling stocks is not expected to change significantly.
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