We spoke to CCL’s CFO, David Bernstein last week. The topic of our conversation was on China. This has become an area of focus for investors following recent capacity cuts, and we wanted to hear the cruise line perspective on what’s happening. RCL and NCLH are in a quiet period, and we should be hearing from them in the coming weeks. Redeployments away from China are always concerning for investors, because it’s our opinion that the industry needs China to work in order to prevent global yields from eroding in the midst of accelerating supply growth into 2019/2020.
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July TravelClick data was released last Thursday 7/20 (sorry for the delay, we missed it in the midst of our CZR initiation) which shows NTM bookings for the top 25 North American markets modestly better than last month with rates modestly worse. Total booked revenue over the NTM y/y doesn’t look much different than last month’s data, but the mix is different. Booked leisure transient revenue over the NTM appears better m/m (bookings up 2.8% and rates down -0.4% vs. last month’s bookings up 0.7% and rates up 0.6%). Booked corporate transient revenue appears worse m/m (bookings down -3.5% and rates up 1.5% vs. last month’s bookings down -1.8% and rates up 1.5%). Booked group revenue also appears worse m/m (bookings up 0.8% and rates up 1.7% vs. last month’s bookings up 0.4% and rates up 2.7%). For this month’s data and all past data click here. TravelClick’s press release also shows that 3Q got better from last month, and the initial read on 4Q is off to a very promising start. That’s interesting, but it also indicates to us that the data is very mixed right now, and there doesn’t appear to be any meaningful directional changes.
Caesars Entertainment Corp. (CZR) is a holding company for three subsidiaries, one of which is expected to emerge from Chapter 11 bankruptcy protection at the end of August. We believe this is a great turnaround story with low hanging fruit to drive continued earnings improvement. CZR trades at a low-end multiple and is now covered by just four analysts, including ourselves. We think that creates an opportunity.
AmericInn is a small midscale U.S. hotel chain with a portfolio of 200 hotels (180 franchised, 10 managed, 10 owned) with another 23 in development. AmericInn is largest in the upper Midwest. AmericInn represents 1.7% of WYN’s total rooms portfolio (2.5% of its domestic rooms portfolio). No financial details were provided, but AmericInn disclosed earlier this year that its 2016 revenue was $220M. We expect this to close by October. We are tweaking our model slightly (more revenue - slightly less buybacks = slightly higher earnings).
Overnight (7/16/17), DICJ reported the Macau VIP/mass market GGR split, which showed 2Q VIP GGR growing 34.8% y/y and mass market GGR growing 8.1% y/y. We believe the numbers are significantly distorted due to the reclassification of premium mass tables to VIP areas to avoid the mass market smoking ban. In 1Q DICJ data showed VIP growing 16.8% and mass growing 8.5%, yet the data from the operators showed VIP grew just 11.0% while mass grew 15.4%. For 2Q we think VIP actually grew 24.8% while mass actually grew 19.5%. Note this will no longer be an issue come January 2019, as smoking at all tables (including VIP rooms) has been completely eliminated following the legislative change approved on Friday. Note for 2H17 we are expecting industry-wide Macau GGR to increase 11.4% with 2018 up 7.6% with VIP outperforming in 3Q and mass market outperforming in 4Q and 2018.
Fresh update on cruise, gaming and lodging. This is a 26 page note we write each quarter where we update our thesis for the industry and each company into earnings and the remainder of the year with new charts.
H is now trading at a 29% discount to MAR on NTM EV/EBITDA, which is about the largest discount since H’s IPO in 2009 (-32% discount hit last month, actually). H’s stock has materially underperformed over the last year, too. Since the U.S. election it’s up just 5% vs. MAR/HLT combined up 33%.
Costa (CCL brand) disclosed this week that Costa Victoria will be sailing from Asia to Italy in March 2018, which implies that the ship is moving out of China and staying in Europe during the summer season. On CCL’s call two weeks ago management said China capacity would be down mid-single digits in 2018. This Costa announcement would be incremental to the mid-single digit commentary. If this stands we assume China will now be down nearly 15% y/y in 2018.
We literally looked at hundreds of different Chinese macroeconomic data points in addition to other potentially relevant data in order to find the best leading indicators for Macau GGR. We narrowed it down to 15 indicators we think are best. Of these 15 indicators about half are trending up (vs. the six month prior data point) and the other half are trending down. In most cases though the overall trend is mostly sideways.
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