Good morning. On today’s agenda:

• Evolution says it is ‘content, not happy’ with margins while cashflows soar.

• Las Vegas Sands flying high on Singapore growth trend despite recent Macau stumbles.

• Betsson sees profits drop on continued Netherlands market absence.

Bow Wow Wow.

Evolution Q2

• Revenue up 34% to €344m while EBITDA rises 36.4% to €238.2m.

• H1 revenues rose 36.2% to €670.7m.

• The acquisition of Nolimit City was announced during the period.

I want candy: Cash flow rose 48% over the period to €186m and despite the EBITDA margin rising to 69.3%, CEO Martin Carlesund suggested Evolution was hungry for more. “The world is in a difficult situation but we reiterate our margin target,” he suggested. 

Martin Carlesund: “Financially it was a good quarter but not great. I want more revenue. I’m not happy, I want more.”

Analysts at Regulus noted the performance came up against tough comps. They noted that Nordic revenues rose 31% despite being a group of more mature markets.

Anarchy in the UK: Noting the flat performance from the UK, Carlesund said the regulatory uncertainties around the White Paper made operators “a bit nervous about being compliant”. “They don’t even dare to do what they are entitled to do.”

• Range rover: Regulus said the UK was “range bound rather than showing an alarming trend”. Affordability constraints are becoming increasingly broadly felt,” they added.

Slots to be happy about: Live casino continued its unstoppable march with revenues rising 36.7% to €278.5m. RNG games were up 6.1% YoY ahead of lapping Big Time Gaming being added as of Jul21. Nolimit City is scheduled to complete Q3.

• After the period close, Evolution’s NetEnt and Red Tiger subsidiaries signed a slots content deal with Holland Casino. 

• The company also opened a studio in Connecticut post-quarter close (its sixth in the US) and opened two other US studios in Q2. US revenues rose 69% YoY to €46.1m.

Up with the pace: Carlesund said Evolution was “pacing up” in the US after a strong quarter of deliveries. “We are clearly not undeserving as much as we were before,” he added.

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Las Vegas Sands Q2

• Net revenue fell 10.9% to $1.05bn while adj. Property EBITDA was down 14.3% to $209m.

• Marina Bay Sands produced $319m of property EBITDA, up 185%. 

Sing when you’re winning: Despite the ongoing closure of LVS’s properties in Macau, the shares were buoyed by the mood music in Singapore where MBS enjoyed what CEO Rob Goldstein said was an “encouraging improvement” despite international travel to Singapore remaining far below capacity.

• Half full: Goldstein noted that airlift into Singapore was “still a challenge”. “There is a lot more room to run as this market opens up,” he noted. Macquarie noted revenues in Singapore were at 90% of mass-market revenues while air capacity was only 50%.

• Asked about reports of a sale of Genting Singapore, Goldstein said it highlighted the “desirability” of the Singapore market. “It is a market that is just beginning to feel its muscle,” he said.

Xi who must be obeyed: In Macau, where the casinos will reopen this coming weekend, Grant Chum, COO at Sands China, noted that LVS had aligned itself “fully and safely” with China’s zero-Covid policy. 

• While remaining “appreciative” of the clarity provided in June with the new gaming law, Chum noted that LVS was “planning for the future” with less VIP rooms and more mass premium space.

• Goldstein pointed out, however, that a move away from the “margin-challenged” junket business would be a benefit to LVS. “I think it expands our ability to make more money,” he added.

Rob Goldstein: “Let’s not ever dismiss the importance of China to any of our businesses. We’re in uncharted waters here but China is very critical to any market in Asia.”

Analyst reaction: Credit Suisse noted that while Singapore was accelerating, Macau “can’t get much worse” but noted that the Singapore rebound potentially offered a template for the Macau recovery. Macqaurie said Macau was a “coiled spring with significant pent-up demand waiting to be unleashed”. 

• No comment: Jefferies noted there was ”no meaningful update” on either digital or New York.

Macau update: Macau casinos will be allowed to reopen with 50% staffing capacity this weekend, following the government’s decision to ease some lockdown measures and enable some non-essential businesses to reopen. 

Share price reaction

Betsson Q2

• Revenue increased 8% (13% organic) to €186.3m but EBITDA dropped 16% to €39.3m.

• Sportsbook revenue increased 22% while casino revenue was up 1%.

That’s entertainment: Despite the widely-reported macro pressures gambling companies could be affected by in the coming months, CEO Pontus Lindwall said Betsson had not seen any negative impact on its trading so far. 

• “We’re part of the entertainment industry and have a broad customer base. And sometimes when bad things are happening in the world, people want to entertain themselves with a good soccer game and having a bet,” he added. 

No explanations: Lindwall added that he didn’t expect Betsson to follow Entain’s prediction of a 4-5% drop in player spend in H2. “We don’t see the same pattern happening, there’s no explanation why,” he commented.

Flying return: The group implied that its license to return to the Netherlands should arrive in Q3 and having previously been “quite a big brand there, we have good assets we want to commercialize”. 

• Dependency: However, Lindwall also made the point that the group wasn’t “dependent on the Netherlands” with plenty of markets where it can “perform strongly”

Q2 analyst preview

• Truist say this will be a “cruel summer” but while Q2 earnings will be OK the outlook “seems less certain”.

Bananarama: The list of macro woes as listed by Truist - including soaring inflation and gas prices and a downturn in consumer confidence and personal savings rates - will mean “more conservative commentary” from management teams in the coming earnings call.

• “The key question remaining is around the potential for a wider, lengthy recession and its impact on the historically resistant industry,” they add.

• In Las Vegas, Truist note that summer forward bookings have “seen some weakness” with July and August room rates down for both MGM and Caesars. 

Look back in anger: A key question is the extent to which the fall in stock prices across the sector is a leading indicator of future trading weakness. Truist note    that during the GFC there was a ~3-month lag between the fall in prices and a hit to GGR.       

• “This is interesting.” The Truist team note that after their recent trip to Vegas they reported operators seeing no impact to margins/GGR from macro/inflation conditions despite the stock selloff. 

• “We continue to monitor for any indications of slowing GGR,” they added.

Caesars analyst updates

• SIG initiated on Caesars by suggesting the company is a high-wire act. 

The great escape: Noting in an initiation note on Caesars its three “Houdini-like” transactions since 2020 including completing its merger, “horse-trading” various assets and getting the sale of William Hill over the line, the team at SIG say they think the ”clock has run out” for the company.

• Taking the hit: Las Vegas will take a worse hit than other regional markets while Caesars' issues around high financial leverage, increased negative operating leverage and a “flawed digital strategy that will need more capital to fix” will magnify the problems.

Premature opening: SIG suggested that Caesars was too hasty going live with a product with “notable and public deficiencies”. As a result, the team suggest, Caesars then spent too heavily on marketing and promotions to make up for the substandard product.

• Money pit: The SIG team emphasize they do not know how a fix can be found, but they do think it will take more time and more capital than is currently contemplated by investors.

• SIG estimate that Caesars will still need to offer out-sized promotional offers to subsidize both customer acquisition and retention.

• “As a result, we would expect Caesars Digital to suffer from a much larger than expected client churn.”

Mr Brightside: A more benign assessment for Caesars came from the team at B Riley who have lowered their forecast Q2 digital losses to $120.1m from $148m, suggesting this will negate the effect of lowered regional EBITDA.

• “We believe potentially lower digital losses vs. expectations should help set a new tone for Caesars’ digital division and add value to shares,” they added.   

Share Earnings+More

Earnings in brief

Monarch Casino and Resort: Net revenues hit $115m, a Q2 record and up 18% YoY while adj. EBITDA was also up 12.2% to $39.5m. The company said the results reflect its strong market positioning. Analysts at Truist said that as the first of the domestic to report Q2 earnings, it remains to be seen whether other operators will be as confident as Monarch on the H2 outlook.

STS: The Polish-listed bookmaker generated GGR of PLN296m ($63.7m) in H1, flat YoY, on handle that declined slightly to PLN2.19bn. The company blamed the timing of the World Cup for the flat figures. STS remains the largest bookmaker by turnover in Poland.

Newslines

Flutter leadership: Conor Grant, the long-standing head of Flutter in the UK and Ireland, has announced his departure from the company. He will be replaced by Ian Brown (no, not that one) who will join from Booking.com in September. Grant joined Sky Betting & Gaming as was 12 years ago.

Playtech and Resorts Digital Gaming in New Jersey have agreed a deal for the provision of live casino, gameshow, and online casino content. The live casino element will be streamed from the Playtech facility in Atlantic City.

Red Rock Resorts is buying more Las Vegas real estate, adding a parcel of land south of South Point for $172.4m according to reports. The company announced this week it would be demolishing three casinos that never opened post-pandemic.

Novibet has made several senior management appointments and announced the expected composition of its board of directors upon the completion of its previously announced proposed business combination with the Artemis Strategic Investment Corporation SPAC. 

Prophet Exchange, the yet-to-launch New Jersey-based P2P sports-betting exchange, has announced it will be the exclusive sponsor of the Badlands Patreon and podcast as well as the Turn on the Jets podcast.

On social 

There’s a thought.

Alex Sherman @sherman4949

My hot take from Netflix’s earnings call: A reporter should be paired with an analyst to moderate the call. Not a single question about the big macro issues. Analysts had projected +20m subs this year a few months ago. Now Netflix forecasts no growth at all thru 9 months.

July 19th 2022

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Calendar

• Jul 20: Las Vegas Sands

• Jul 21: Betsson Q2, Evolution Q2

• Jul 22: Kindred Q2

• Jul 26: Boyd Gaming Q2

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