Earlier in March, Las Vegas Sands (NYSE: LVS) took a historic step by announcing the sale of its Vegas property to Apollo Funds and VICI Properties for $6.25 billion. With multiple states legalizing sports wagering, the company’s peers including MGM Resorts, Penn National Gaming, and Wynn Resorts launched their sports betting applications in 2020. Sands’ has not announced its entry into the U.S. sports betting and iGaming industry but has a hidden presence with William Hill’s marquee site at Sands’ Venetian and Palazzo properties in Las Vegas. Given the uncertainty associated with the company’s decision to enter the sports betting industry or expand its Asian portfolio, Trefis compares profitability across geographies to highlight strong upside potential in the stock as the company reveals its investment plans in the near future. We believe that the stock has a sizable upside if new investments provide returns comparable to the Singapore property. Our interactive dashboard analysis highlights Las Vegas Sands stock performance during the current crisis with that during the 2008 recession.
Sands’ revenue and margin contribution from different geographies
In 2019, Sands’ Macau, Singapore, and Vegas properties contributed 63%, 22%, and 15% of the $13.7 billion revenues, respectively. More importantly, Vegas properties reported the lowest EBITDA margin of 26% compared to 54% by Singapore and 36% by Macau. Thus, investor returns are majorly driven by Sands’ Macau and Singapore businesses.
As the company re-invests the capital from the Vegas property sales in assets with a potential to generate a high 54% EBITDA margin (as the Singapore property does) in the long-run, shareholders will benefit from higher profitability and an expanding top line – resulting in long-term capital gains.
What If Sands allocates excess cash in Singapore and reduces its debt burden?
In 2019, Sands announced the extension plan of Marina Bay Sands (Singapore property) with a targeted cost of $3.4 billion. The extension project will increase the number of rooms by almost 50% with an expectation of similar growth in other segments including gaming, shop rentals, and food & beverage services. With a higher capacity, Sands’ EBITDA from Singapore can increase by 50% – resulting in excess return on invested capital. Thus, the stock has strong upside potential from current levels assuming that the company’s new investments generate returns comparable to Marina Bay Sands.
Along with a potential entry into the U.S. sports betting and iGaming industry, the company has also been looking for acquisition targets in Asia. Thus, the freed-up capital opens a plethora of opportunities for the company and likely gains for shareholders.
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