This morning (04/18/18) NCLH announced a three-year $1B share repurchase authorization. NCLH completed its prior authorization after repurchasing $264M from Apollo on the secondary last month.
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MAR and HLT are higher quality consumer discretionary companies because of their business models, which offer structural asset-light growth. Both stocks pulled back more than 10% from their highs along with the market, and it’s our view that these stocks should generally be bought on pullbacks, all else equal, because long-term EBITDA growth and capital returns are more certain than with many other companies. To compare we looked back 25 years to find prior 10%+ peak-to-trough selloffs in MAR – we can’t compare HLT because it hasn’t been public for long and its business model recently changed to pure asset-light, so we use MAR as the proxy. Outside of recessionary time periods these pullbacks have generally been short-lived, and MAR has gone on to make new highs.
This morning (04/11/18) it was reported by Reuters that H is bidding to acquire HNA’s 29.5% stake in NH Hotel Group (NHH), which could cost around $800M. NHH is public and trades on the Madrid Stock Exchange.
This is a 26 page note we write each quarter where we update our thesis for each industry and each company into earnings and for the remainder of the year. We hope you will join us at our quarterly investor lunch we’re hosting in NYC on Friday.
This morning (4/9/2018) pre-market HLT announced a secondary offering for HNA to sell ~63.1M shares of its ~82.5M stake in the company. HLT intends to repurchase an additional 10M of HNA’s shares (~$775M), with an option to increase the repurchase amount to 16.5M shares (~$1.3B). After this offering HNA’s stake will be down to ~3% or potentially 0% if the underwriters exercise their option for an additional ~9.5M shares. We believe this sale is positive because it eliminates an overhang and HLT is repurchasing a large amount of stock.
Macau GGR grew 20.5% y/y in 1Q18, which accelerated sequentially from last quarter despite tougher y/y comparisons. Macau GGR has continued to surprise to the upside despite seemingly mixed macro data in China. We believe currency is one reason for the recent strength, as the CNY/HKD continues to strengthen, and mainland Chinese visitors make up over 2/3 of Macau’s total visitor population. To put it simply, Chinese visitors gambling with the same number of CNY are now gambling with more HKD. We looked at the geographic mix of the top five origination markets to Macau – which make up 95% of the total – and multiplied the mix by the y/y percent change in the associated currency to understand the currency impact in each quarter.
Late last night (04/05/18) an article from the NY Post claimed MGM has expressed interest in acquiring WYNN. The article included quotes from unidentified sources, but one of those sources was noted as saying “no official talks had yet taken place.” We previously explored an MGM/WYNN scenario a few months ago in a note here.
In this note we place a value on each one of H’s 28 owned hotels and their 26 hotels owned proportionately through joint ventures. Our analysis shows H’s 28 owned hotels could be sold for $5B, which implies H’s total owned hotels are worth just under 16x EBITDA (14x after tax). That seems like a big multiple, but the implied price/key looks more reasonable to implied valuations for other REITs, like HST, because H has trophy assets at lower margin EBITDA (Exhibit 4). In our sum of the parts we assume the entire owned/leased segment is only worth 11x EBITDA, and that much lower multiple still produces our $96 target price.
March Macau GGR was released on Sunday (04/01/18), which showed growth of 22.2% y/y, versus our ~15% implied estimate, and consensus of we think about 17%. GGR grew 20.5% y/y for the entire 1Q, which translates to 850M MOP/day, compared to 787M MOP/day last quarter. We believe a key reason for the sequential strength is the stronger CNY/HKD, which is now at a 2.5 year high. Other important Chinese indicators have been mixed.
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