Commentary: Renaissance Capital says casino a good bet
By Renaissance Capital
Last Update: 11:15 AM ET Dec. 13, 2004
Editor's Note: Renaissance Capital runs the IPO Plus Fund (IPOSX: news, chart, profile). The fund may have investments in the securities mentioned in its report. For more information, see the company's Web site at www.ipohome.com.
GREENWICH, Conn. (CBS.MW) -- It can be tough to make a buck at the casino. But Las Vegas Sands' IPO may well be a winner.
With a strong operating history and growth potential in Las Vegas and in Asia's Macau, Las Vegas Sands could offer a significant payout for those investors willing to play a hand.
Founded by Sheldon Adelson in the 1970s, Las Vegas Sands started operations with the Sands Convention Center on the Las Vegas Strip.
In 1988, Adelson acquired the neighboring Las Vegas Sands Hotel and Casino. After eventually imploding the famed "Rat Pack" hot spot, Adelson erected the Italian-themed Venetian Hotel in 1999, which has become the premiere Las Vegas resort, with the highest operating margins and occupancy rates on the strip.
Las Vegas Sands (LVS: news, chart, profile) recently opened the 1,000-suite Venezia tower addition to the Venetian, and was still able to grow occupancy and room rates in the quarters that followed.
The company now plans to expand with the $1.6 billion Beverly Hills-themed Palazzo resort, to be built adjacent to the Venetian.
The Palazzo will add about 3,000 suites and double the size of its casino and retail space. With recent debt financing and the sale of its Grand Canal Shoppes at the Venetian, Las Vegas Sands is fully financed for the project, which it hopes to open by mid-2007.
Vegas on the Pearl River Delta
As impressive as its Las Vegas operations appear to be, the true growth potential is in a tiny island off the coast of China -- Macau.
With the Chinese government's recently eased travel restrictions and an enthusiasm for gambling among Asian cultures, Macau is the epicenter of gaming in Asia. Even with just a handful of casinos, Macau is expected this year to exceed the Vegas strip in total gaming volume.
Adelson's company was granted one of three coveted concessions in Macau and has quickly capitalized on the opportunity by opening the first Vegas-style casino in Asia. The $265 million Sands Macao was opened in June and has been wildly successful. The third-quarter cash flow generated by the casino alone was $68.5 million, more than 25 percent of the initial capital invested for its construction. However, Las Vegas Sands views this success as only the beginning.
Adelson and company plan to open a $1.8 billion Venetian-style casino/resort in Macau by the first quarter of 2007. It will have 3,000 suites, over 500 thousand square feet of casino space, one million square feet of retail space and 1.8 million square feet of trade show space. Las Vegas Sands envisions the Venetian Macao as the cornerstone of a coordinated effort with third-party hotel developers to build a Vegas-style strip in Asia.
That strip will have six, 1,500-room hotels in addition to the Venetian Macau, and has been approved by the Macau government. Las Vegas Sands plans to lease and operate the casino space of these hotels, which means it will enjoy lucrative casino-generated cash flow without the capital investment.
Las Vegas Sands' main competitors include MGM Mirage (MGG: news, chart, profile), Mandalay Resorts (MBG: news, chart, profile), Caesars Entertainment (CZR: news, chart, profile), Harrah's Entertainment (HET: news, chart, profile) and Wynn Resorts (WYNN: news, chart, profile).
Major mergers have been proposed, as MGM plans to acquire Mandalay and Harrah's plans to acquire Caesars. The boost from these consolidations should give Las Vegas Sands an extra leg up when it hits the market.
Las Vegas Sands' closest comparable may be Wynn Resorts (WYNN: news, chart, profile), which plans to open an ultra high-end Vegas casino in 2005 across from the Venetian, and was also granted a Macau concession, where it plans to open its casino in 2007.
When comparing its current valuation to Wynn's, based on future cash flow, we see upside in Las Vegas Sands' currently proposed valuation, even at the mid-point of its recently raised range of $24 to $26 per share (the original range was $20 to $22 per share, which the company upped by almost 20 percent late Friday).
Pay your money, take your chances...
But there are concerns. After the construction of its two developing properties, the company will still be dependent on a handful of entities in only two markets.
And there are operating risks associated with Macau, which is a special administrative region of China, including possible gaming restrictions and travel restrictions from the Chinese government.
As well, the company is highly leveraged, and may need an additional $1.2-$1.3 billion in debt financing to fund the Venetian Macao.
When dealing with casinos, it is often difficult to make money. However, we see Las Vegas Sands' IPO as a golden opportunity. With a strong operating history and huge growth potential in Vegas and Macau, Las Vegas Sands could offer a significant payout for those investors willing to play a hand
By Renaissance Capital
Last Update: 11:15 AM ET Dec. 13, 2004
Editor's Note: Renaissance Capital runs the IPO Plus Fund (IPOSX: news, chart, profile). The fund may have investments in the securities mentioned in its report. For more information, see the company's Web site at www.ipohome.com.
GREENWICH, Conn. (CBS.MW) -- It can be tough to make a buck at the casino. But Las Vegas Sands' IPO may well be a winner.
With a strong operating history and growth potential in Las Vegas and in Asia's Macau, Las Vegas Sands could offer a significant payout for those investors willing to play a hand.
Founded by Sheldon Adelson in the 1970s, Las Vegas Sands started operations with the Sands Convention Center on the Las Vegas Strip.
In 1988, Adelson acquired the neighboring Las Vegas Sands Hotel and Casino. After eventually imploding the famed "Rat Pack" hot spot, Adelson erected the Italian-themed Venetian Hotel in 1999, which has become the premiere Las Vegas resort, with the highest operating margins and occupancy rates on the strip.
Las Vegas Sands (LVS: news, chart, profile) recently opened the 1,000-suite Venezia tower addition to the Venetian, and was still able to grow occupancy and room rates in the quarters that followed.
The company now plans to expand with the $1.6 billion Beverly Hills-themed Palazzo resort, to be built adjacent to the Venetian.
The Palazzo will add about 3,000 suites and double the size of its casino and retail space. With recent debt financing and the sale of its Grand Canal Shoppes at the Venetian, Las Vegas Sands is fully financed for the project, which it hopes to open by mid-2007.
Vegas on the Pearl River Delta
As impressive as its Las Vegas operations appear to be, the true growth potential is in a tiny island off the coast of China -- Macau.
With the Chinese government's recently eased travel restrictions and an enthusiasm for gambling among Asian cultures, Macau is the epicenter of gaming in Asia. Even with just a handful of casinos, Macau is expected this year to exceed the Vegas strip in total gaming volume.
Adelson's company was granted one of three coveted concessions in Macau and has quickly capitalized on the opportunity by opening the first Vegas-style casino in Asia. The $265 million Sands Macao was opened in June and has been wildly successful. The third-quarter cash flow generated by the casino alone was $68.5 million, more than 25 percent of the initial capital invested for its construction. However, Las Vegas Sands views this success as only the beginning.
Adelson and company plan to open a $1.8 billion Venetian-style casino/resort in Macau by the first quarter of 2007. It will have 3,000 suites, over 500 thousand square feet of casino space, one million square feet of retail space and 1.8 million square feet of trade show space. Las Vegas Sands envisions the Venetian Macao as the cornerstone of a coordinated effort with third-party hotel developers to build a Vegas-style strip in Asia.
That strip will have six, 1,500-room hotels in addition to the Venetian Macau, and has been approved by the Macau government. Las Vegas Sands plans to lease and operate the casino space of these hotels, which means it will enjoy lucrative casino-generated cash flow without the capital investment.
Las Vegas Sands' main competitors include MGM Mirage (MGG: news, chart, profile), Mandalay Resorts (MBG: news, chart, profile), Caesars Entertainment (CZR: news, chart, profile), Harrah's Entertainment (HET: news, chart, profile) and Wynn Resorts (WYNN: news, chart, profile).
Major mergers have been proposed, as MGM plans to acquire Mandalay and Harrah's plans to acquire Caesars. The boost from these consolidations should give Las Vegas Sands an extra leg up when it hits the market.
Las Vegas Sands' closest comparable may be Wynn Resorts (WYNN: news, chart, profile), which plans to open an ultra high-end Vegas casino in 2005 across from the Venetian, and was also granted a Macau concession, where it plans to open its casino in 2007.
When comparing its current valuation to Wynn's, based on future cash flow, we see upside in Las Vegas Sands' currently proposed valuation, even at the mid-point of its recently raised range of $24 to $26 per share (the original range was $20 to $22 per share, which the company upped by almost 20 percent late Friday).
Pay your money, take your chances...
But there are concerns. After the construction of its two developing properties, the company will still be dependent on a handful of entities in only two markets.
And there are operating risks associated with Macau, which is a special administrative region of China, including possible gaming restrictions and travel restrictions from the Chinese government.
As well, the company is highly leveraged, and may need an additional $1.2-$1.3 billion in debt financing to fund the Venetian Macao.
When dealing with casinos, it is often difficult to make money. However, we see Las Vegas Sands' IPO as a golden opportunity. With a strong operating history and huge growth potential in Vegas and Macau, Las Vegas Sands could offer a significant payout for those investors willing to play a hand
