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Gambling revenues in Macau are touching new highs every month and thereby positively impacting share prices of leading casino operators. However, issues such as legalization of gambling in Japan and concerns related to crackdown on illegal money transfers from mainland China to Macau temporarily stalled the bullish run of these stocks.

Among other updates last week, one leading Las Vegas, NV-based casino operator Caesar’s Entertainment Corp. (CZR - Snapshot Report) raised a loan to pay down the debt of its subsidiary Caesars Entertainment Operating Co. (CEOC) due in 2015. Additionally, two casino operator companies Century Casinos Inc. (CNTY - Snapshot Report) and Full House Resorts Inc. (FLL - Snapshot Report) posted disappointing first-quarter results – both missing the Zacks Consensus Estimate.

Recap of the Week’s Most Important Stories

1.    Leading casino operators -- Wynn Resorts Ltd. (WYNN - Analyst Report) and MGM Resorts International (MGM - Analyst Report) -- announced their plans to open casino resorts in Japan, one of the largest untapped markets, once the local government legalizes gambling in the region. These companies plan to conduct initial public offerings for planned resort ventures in this market.

However, the chances of the bill being passed in the current parliamentary session ending June are dim. Hence, the delay could thwart the plans of casino operators to establish their presence in a market, which has the potential to become the third largest gaming destination after Macau and the United States with an expected annual turnover of more than $40.0 billion.

Also, Tokyo is due to host the Olympic Games in 2020 and a delay in legislation and the subsequent completion of the projects may translate into a missed opportunity for these companies.

2.    In a separate development, Macau authorities recommended banks in China to restrict the use of state-backed bank cards to control the illegal transfer of large amounts of cash out of China. These illegal transactions amounted to $22.5 billion in April this year.

The restriction, if implemented, would curb the cash stream for gamblers and adversely impact the business of leading Macau-based casino operators -- Las Vegas Sands Corp. (LVS - Analyst Report), MGM Resorts, Wynn Resorts, Melco Crown Entertainment Ltd. (MPEL - Snapshot Report), SJM Holdings Limited and Galaxy Entertainment Group.

Players have been found using mobile card-swiping devices to get hold of more local currency, which is an illegal practice. UnionPay, a payment card agency, believes that this way billions of dollars are being siphoned off illegally from mainland China to Macau. (Read more:  Casino Stocks Tumble on Macau Crackdown Fears).

3.    Caesar’s Entertainment raised a floating rate loan worth $1.75 billion carrying an interest rate of 8.75%. This term loan B will be used to pay down borrowings of its subsidiary Caesars Entertainment Operating Co. (CEOC) due in 2015.

This action is part of Caesar’s Entertainment’s constant efforts to improve its financial condition after the leverage buyout by Apollo Global Management LLC (APO - Snapshot Report) and TPG Capital in 2008. As an effort to restructure its heavy debt and strengthen its core businesses, the company announced a comprehensive financing plan designed to aid independent stock listing and significant de-leveraging of CEOC. (Read More: Caesars Entertainment Soars on Funding Plan).

4.    Century Casinos posted first quarter 2014 results with earnings and revenue missing the Zacks Consensus Estimate. Though earnings declined year over year due to higher operating costs and expenses, revenue surged 62.0% year over year owing to purchase of an additional 33.3% ownership interest in Casinos Poland Ltd. in Apr 2013. During the earnings conference call, the company indicated that the construction of its Century Downs Racetrack and Casino in Alberta, Canada is on track, within budget and is slated to open in first-quarter 2015.

5.    Las Vegas, NV-based Full House Resorts also posted first-quarter 2014 results. The reported loss was wider than the Zacks Consensus Estimate and also compared unfavorably with the year-ago results. The company missed the consensus mark on the revenue front as well. The top line declined on a year-over-year basis owing to weak revenues at all its casinos due to inclement weather.

Stiff competition and a soft consumer spending environment were also responsible for the dismal results. However, the company has a strong project lineup. It is also working on improving its existing properties and implementing strategic cost containment measures to achieve growth.

Performance

Last week, all leading casino operators lost, with Caesar’s losing the maximum (4.95%). However, except Melco Crown Entertainment, all others gained over the last six months. MGM Resorts led the way followed by Wynn Resorts.

Company

Last Week

Last 6 months

WYNN

-0.33%

25.21%

LVS

-3.65%

8.42%

MGM

-2.81%

27.74%

MPEL

-3.59%

-3.85%

CACQ

-2.10%

20.72%

BYD

-1.47%

7.96%

CZR

-4.95%

4.11%


 

 

 

 

 

 

 

 

 

 

 

 

What’s Next in the Gambling World?

Gambling stocks have oscillated between gains and losses in recent sessions and investors can expect such movement in the coming days as well.

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