(By Mani) Shares of Las Vegas Sands Corp. (NYSE:
LVS) is going ex-dividend today under which shareholders as of market close today will be eligible for a dividend of 25 cents per share. The dividend yield is about 2.2 percent.
Meanwhile, shares of the casino and gaming operator would benefit from a series of catalysts in the coming months including favorable September Macau trends into Golden Week in October; a potential dividend increase; a continued share ramp in Macau; and a greater appreciation of the free cash flow story as concerns around Macau ease.
Following the opening of Sands Cotai Central in April, the market share of Las Vegas Sands market share has quickly accelerated to 19 percent from 16 percent level garnered in the twelve month period prior to the opening of Sands Cotai Central.
"While we believe LVS market share will moderate from current quarter to date levels, given recent September channel checks, we believe incremental share gains from the 19.0% garnered since the opening of Sands Cotai Central are feasible," Deutsche Bank analyst Carlo Santarelli said in a note to clients.
In the near term, Las Vegas Sands is well positioned to continue to return capital to shareholders via increasing dividends and/or a potential larger scale share buyback.
"At present we are forecasting gross free cash flow yields of 7.5%, 9.2%, and 10.1% on 2012, 2013, and 2014, respectively," the analyst said.
In addition, the company could make capital deployment towards potential projects in yet to be legalized gaming jurisdictions such as Spain and Japan.
Recently, the company choose Madrid as the "preferred location" for its integrated resort plans in Spain and would evaluate the size/spend/location of the project within Madrid and establish its preferred financing method.
Moreover, the company's strong, free cash flow story would not be meaningfully disturbed by the project in the near term.
"Assuming a $4bn development over a five-year period starting some time in 2013 (at the earliest), we anticipate a total equity contribution of ~$1.2 bn, with the bulk of the spend coming in 2015 and beyond," Santarelli said.
Moreover, the ability to sell, to the investment public, the merits of a large scale integrated resort in a relatively under-penetrated region would become easier over time as the situation in Europe stabilizes/begins to improve.
"We are of the belief that continued traction towards further proliferation of gaming in the Far East is the next meaningful leg for the large cap stocks in our gaming coverage universe. More specifically, we believe Japan and South Korea are the two most needle moving opportunities to be had over the next several years," the analyst wrote.
Currently, gambling in Japan is illegal. However, there has been considerable talk of legalizing gaming in the last year. In 2010, the Diet, Japan's legislature, proposed a bill that would have lifted the ban on casinos in Japan. Due to the tsunami and various other political events, the bill was pushed to the backburner. Discussions have continued to take place despite falling out of the public eye, and recently a framework for a bill was discussed at the latest general assembly meeting of the international sightseeing industry association.
Response to the proposal was overwhelmingly positive, and plans are to introduce the bill at the next extraordinary session of the Diet taking place this fall.
"Given strong public and political consensus on legalizing gaming, we believe legalized gaming is a matter of when, not if, in Japan. With a $40 billion gray market for pachinko and pachislot wagering already in place, we see enormous market potential for destination casino resorts," Santarelli added.
As always, however, tax rates and other legislative questions yet to be answered will go a long way in determining the profitability of said resorts.
"Given its abundance of capital and early stage involvement with Japan, as well as a replica project for Japanese officials in Singapore, we believe LVS is an odds on favorite for a license in the event Japan legalizes gaming. We would expect signs of progress towards the legalization of gaming in Japan to be positive catalysts for LVS," the analyst added.