Las Vegas Sands Mulls Boosting Sands China Investment with Venetian Sale Cash

Posted on: April 22, 2021, 08:02h. 

Last updated on: April 22, 2021, 10:36h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Las Vegas Sands (NYSE:LVS) is considering using some of the proceeds from the sale of its Strip assets to increase its stake in Sands China, its Macau unit.

Sands China
The Venetian Macau pictured above. Las Vegas Sands could increase its ownership in Sands China. (Image: South China Morning Post)

Executives from the largest US gaming operator by market capitalization commented on the matter during the company first-quarter earnings conference call. Sands reported total property earnings before interest, taxes, depreciation and amortization (EBITDA) in Macau of $100 million, with $144 million in Singapore. Analysts expected $106 million and $146 million, respectively.

Last month, the Las Vegas-based company said it’s selling Venetian Resort and Sands Expo and Convention Center on the Strip to Apollo Global Management and VICI Properties for $6.25 billion, stoking speculation as to what the operator will do with the influx of cash. It appears boosting its holdings in Sands China is on the table.

“So it’s definitely something that we think about and consider over time. I think where we are now – we don’t have the proceeds yet. We’re looking at all the options, and we’re going to consider everything,” said CFO Patrick Dumont on the earnings call.

LVS owns 69.94 percent of the Macau business and could raise that percentage to 75 percent.

The Hong Kong Stock, Sands China’s listing venue, requires member firms to freely float 25 percent of their shares, but Dumont notes there are exceptions to that policy.

‘Staying Patient’ on Sands China Stake

The LVS CFO said the company is considering multiple options for how to deploy the capital from the sale of the Las Vegas assets.

“There is a lot of opportunity in front of the company. We’re staying patient, we’re looking at it all, and we’re going to look at it through different lenses,” he said on the call. “It’s not something I’m going to say we’ll do now. But it is something we will consider as we look across how to deploy capital.”

Pragmatism aside, it’s widely expected that LVS will deploy some of that capital in Asia and likely spread it across its Macau and Singapore operations. Prior to the sale of the Strip holdings, Macau and Singapore were long the primary drivers of the operator’s EBITDA and revenue, indicating it’s likely Sands will invest some of that $6.25 billion in those markets.

A portion of those proceeds could also be used to fund expansion in New York City or Texas — the latter of which LVS is already spending in to drum up support for an integrated resort project.

Analyst Talk

Investing more in Sands China is a long-term move. But analysts are focusing on near-term signs of recovery in Macau. As a result, they’re coming away somewhat tepid on LVS shares.

“Key barriers and visibility around visa issuance/testing remain unchanged. LVS noted improvements in March/April, but indicated the recovery is likely more gradual and that investors may be disappointed waiting for a specific inflection point,” said Bank of America analyst Shaun Kelley in a note to clients today.

He rates LVS stock “neutral.” Stifel’s Steven Wieczynski is bullish on the shares over longer holding periods, but acknowledges some investors won’t be pleased with the pace of Sands’ rebound.

“Our frustration level continues to be high, given LVS’ massive underperformance versus our coverage universe and the broader equity markets as well,” he said. “We aren’t throwing in the towel and at this point are actually more positive about the setup in the shares moving forward than we probably have been over the last six months.”

Wieczynski rates LVS a “buy” with a $77 price target.