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Is a Consensus Forming Around Las Vegas Sands’ Sustainability? (LVS)

Posted on | December 11, 2008 Time: 3:14 pm |

Today we officially pass the one month mark since Las Vegas Sands announced their utterly dilutive stock and warrant offering in an attempt to stave off bankruptcy. Considering the size of the deal and the audacity associated with bypassing the shareholders’ ability to have a say in the matter, investors should be pleased to see that we’ve now closed above the offering price of $5.50 on 3 of the past 5 days:

I’ve overlayed the 10 & 20 dma (notice the cross today), which are the only moving averages that are relevant on this stock, which is still down over 94% on the year.

Sustainability Thesis Looking Better

Given the huge risk/reward imbalance with the company’s equity (of which Sheldon Adelson still owns over half), I wrote up a comprehensive sustainability study on the company. I saw mostly green lights into 2009, but still saw a general shortfall of $300m - $500m, which may be raised via a syndicate loan on retail properties or Macau land parcels. The market seems to be coming around to a future where LVS equity survives, as shares are up over 75% from the closing low on November 21st.

While we’re still treading water on the overall cash flows for the next year, some big institutions have stepped up their investment in the company, as Fidelity disclosed a 15% position yesterday. I’d still like to see a $1b or so deal get closed on retail properties before the end of the year, as recent news out of Vegas is that gaming revenues are down for the 10th month in a row, and 26% year-over-year in November. Oh, by the way, November was officially the worst month on record at the Gaming Control Board.

Parting Thoughts

Given the structure of the loan covenants, the most important event of the next year is the opening of the Marina Bay in Singapore. The money’s already been spend, and LVS desperately needs to get the some operating income flowing to make up for cash positions that will only be heading down from here.

Also holding out hope that China might relax the Macau visa restrictions, but this isn’t the year for lengthy Christmas lists. We continue to hold LVS in the Secular Trends Portfolio, understanding that we’re likely to see more short-term volatility here than at the blackjack tables.

Disclosure: Author does not hold a position in LVS.

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Read more on Las Vegas Sands at Wikinvest
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