MGM's Tricky Recovery Path; Miners' Carbon Transition

Alex Steel and Paul Sweeney on Bloomberg Radio. Over the next hour, we're going to dig inside the big business stories impacting Wall Street and the global markets. Each and every week we provide in depth research and data on some of the two thousand companies and industries are analysts cover worldwide. Today, we're going to take a look at the revenue recovery for MGM resorts, plus the UK residential renovation gets a boost from the housing hot streak. But first,

let's talk about travel. Are you going anywhere for the rest of the summer, Are you making any plans for the winter, and what does that mean for the airline stocks, hotel stocks, the whole thing to any us now. Bloomberg Intelligence Senior Airlines analyst George Ferguson George this past week, in a surprise move, the EU didn't stop US citizens from coming into the EU and be able to vacation that they're going to reevaluate in the next two weeks.

What's intercontinental travel like right now? So I think that was one of the few good news points on trans atlantic travel. So trans atlantic travel is I would say, a hodgepodge of requirements and regulations right now. The most besuttling to me, I think, is that the US has excluded a lot of our key partners from Europe, the Germans, the you know, the English and such, from even coming here quarantine or not, um, you know, But we can go there to some of the countries and some of

them we have to quarantine. Some not usual in the southern hemisphere, the ones that like and need travel the most have the least restrictions. But we're starting to see, you know, a major spike in some of the some of the virus activity down there. So it makes me wonder how long that's gonna last, or how long US travel is going to want to go there. So I just call it a ridiculous hodgepod right now, really hard

to figure out, very country dependent. Where are we just in U S domestic uh capacity right now Georgia, it seems like there's more planes on the ground and in the air. Where are we in terms of that capacity? Yeah, so US capacity as you know, as we sort of near the end of the summer travel season. Uh, you know, some of the low cost carriers are even flying more than they did in twenty Lots of carriers are I would say, within ten or fifteen percent of of levels UM.

And this is just on leisure travel. So I'd say from a leisure travel perspective, from what we've heard from a lot of them is that they're back to level. So it's been quite a nice bounce back on leisure in the US and the domestic market. Does that hold up with Delta so well? I think there's a couple of problems. I think Delta is a bit of a problem. UM. I seem to think we're not going to ever go back to the lockdowns that we saw. I think we

understand the virus too much. There's some people that just won't I think, you know, refrain as much as they would maybe last March when they didn't understand what was at risk. UM. So I think Delta does take some demand off the table. But I think more importantly is the business travel right. I think the leisures closing, by the heavy leisure seasons closing, kids are going back to school. It's going to make it harder for mom and dad to get away with the kids. If you don't have kids,

that just you know, it's it's it's easier. And companies though starting to push back that return to office. I think employees need to be back in the office before the companies really flesh out what travel policies are going to be. And so I think without that sort of return to office or pushing it back, I think we're not going to see that business travel for longer. And I think that really hurts the fall season and winter season this year because of that. And I think and

Delta has an effect on that. And we're talking about the Delta variant, not Delta airline point airline conversation. I'm sure that folks Delta appreciate clarifying that. George, all right, So it's it's interesting people were hoping by this time we'd have, you know, more vibrant trans atlantic I'm more vibrant maybe intercontinental European travel, but this delta variant has really put a wrinkle in that. Are the airlines Are they preparing for a slower than expected kind of third

and fourth quarter? Are they guiding down? So uh, as of right now, we don't see that. We've just finished earning season. Um you know, most of them were pretty upbeat on booking trends. They were, I mean, there were some of them that would readily admit that business travel is a is a short booking window, um you know, meaning business travels usually book within a couple of weeks. And so they said they look at we don't we don't have a sense for where businesses going, and we

do see a taper in leisure. But most of them, we're pretty upbeat. So I don't see them guiding yet, but we'll be. We're watching closely. Right now. There are

enough flight attendants and pilots to do stuff. There are challenges with labor Like everywhere else in the economy, pilots are pilots are very I don't know what the right there may be sticky, you know sort of labor force because they've got such a specialized skill set, and the challenge there is more getting them trained and having them current to fly the equipment that you've got at the airline at this point, right, And some airlines cut part of the fleet, so they might not need pilots that

fly X y Z, but they need flots pilots of fly pdqes and so they got to get them trained and move them to move them to what they have in the fleet. Others haven't been flying for a while. That's a little bit of a challenge. That's a challenge for the for the full service carriers, you know, the

United the Deltas, the American um. The low cost guys, they're having a problem because I think they're trying to take a lot of market share here and we're seeing companies like Spirit, I think, really push the amount of capacity they put in the marketplace without having the appropriate levels of reserve airplanes and other um, you know, on pilots that aren't that are in reserve ready to meet you know, the need if they have a weather event or something like that. And that's hurt that we've seen

that recently. So I think the low cost guys are pushing it. The full service guys do have a genuine sort of training problem. Okay, George, thank you very much. George ferguson Bloomberg Intelligence, senior Airlines analyst. All right, coming up on the program, we look at which mining and metals companies are best positioned for the transition to a low carbon world. You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies

and a hundred and thirty industries. You can access Bloomberg Intelligence through the I go on the terminal, I'm Alex Steel and on Paul Sweeney. It's thirteen minutes past the hour, and this is Bloomberg. This is Bloomberg Intelligence with Alex Steel and Paul Sweeney on Bloomberg Radio. Well, we spend a lot of time on this program talking about the s G investing environmental social governance. It's growing in popularity. This time we want to take a look at how

the metals and mining industry fairs under this analysis. For that we welcome Bloomberg Intelligence E s G analysts, Shaheen contractor just at first blush Shine. It would seem to me the medals of mining companies might not score very well on E s G. Is that a is that a poor bias on my part? So I think medals and minings have always been sort of the traditional discycling in gas, but the traditional folk surface not flat. But I think the benefit of that is they picked up

the game fairly early on in the process. And I think we're seeing a number of minors that have ramp up. A number of them have set these gobbon reduction goals of the last euros, so I would say, probably something I haven't seen before. So you kind of ranked them light, right, So you go over forty six metal and mining companies before we get into like who scored well and who didn't. What were your criteria, because a lot of times you I feel like companies say one thing and do another.

But even more importantly they say like carbon intensity versus you know, versus my own operations, and and those make a difference and how you measure it absolutely, And so our ranking is really looking at these carbon reduction goals. So these are bi common schools, And what we're really

doing is we're starting companies on two pillars. So one is a historic pillar which looks that sort of reduction trend over five years and along with the current intensity, and the second is more sort of forward looking at we're here we're quantifying these forward looking reduction goals and really comparing it to a temperature aligned benchmark. So the end of the day, we're just saying, you know, who's

aligned with the Paris goals, who's ambitious enough. UM to your point, of course, they're They're tricky, which is why we've come up with this standardized way of the things. So there's three ways to kind of measure stuff. Like one is Scope one and two, which are basically the carbon reduction using your own power, so you're using less. Uh. The other is the types of energy that you're using,

so instead of using coal, maybe you use solar. And then the other is the products that you produce and cutting that or any of these guys tackling Scope three because in the oil community, Scope three is so hard to do because it's basically trying to tackle emissions and like jet fuel and what you're driving in your car. Yeah yeah, UM. I think Scope three for things like oil and gas is the elephant in the room. I think if you go beyond that to other sectors, it

isn't so much of a focus. I think the one company that comes to my mind that is tackling scope three is UM if I remember right, it's mim um. But again other than that, it's largely just operation emissions because I think if you you know, you have transportation will in gas. That's really were Scope three is the elephant in the room. Well it comes to metals and mining, but not that yet, so shooking for metals and mining company, what do they actually do to improve their E s

G kind of footprint if you will? Sure so you know for for it really depends on the metal produced, and it's just so diversified. Giving the example of aluminium, so aluminium is again just one of the most common intensive industries, and over there it's things like increasing scrap based production, which is much less common intensive, and also decomganizing the power sector for example, because aluminium just uses a lot of electricity. But it varies very different metals.

But where he is literally from company to company, mind to mind. But to that point, and take a look at the carbon scores that are the worst and that's gonna Rio and Glencore is that is a thing u so real Dento has a fair amount of operations and aluminum and just the way the score is design aluminum being so common intensive has to reduce submissions by a lot more than other diversified minors. So by before they automatically tend to tend towards the lower end of their

score of our score card. Again, just because there's so much more carbon intensive than any other metal and tend to having sort of phenom in that UM would weigh down on them just like any other company. Like you will see Hinda Core, you'd see rustles towards the bottom. So shehan, is there any regionality to this? Are our

European damasile companies do they do better? Because it seems to me I have s G concerns or G s E s G issues are more pronounced in Europe than perhaps or more advanced than they are in the US. So do we see that in some of the results, in some of the performance of these companies. Suppose you're right, I think for most sectors we do see the street

nudisms where Europe is leading. I think the metics and minings I didn't see it just because everything is so globally spread like Africa, South South America or theations are just diversified. I think the medicine minings, it was more by sub industry and what I mean by that is base metal companies had far more goals and precious metals again, base metal example, aluminum, it's much more common intensive, which is why it's more metal for operations again, which is

why companies are setting these goals. Precious metals not so cognit intensive, yes, and a focus less of a priority. Yeah, it feels like copper goal kind of get a little bit of a easier paths that. Um, they do, and they should because it's not that govern intensive. It comes down to sort of cause some things like that. Are

the our investors rewarding these companies for that? So you know, that's a great question, and I still have to do the analysis for metals, but I can give you what I did as an exampt for utilities, where we saw that you know, companies with higher bi common scores were

more likely to be held in any sc fund. So clearly e SG investors our prioritizing these I would say these issues now, I would wait to see what kind of analysis at least to medalsine mining, but um, that's what we had for utility, So definitely something prioritized for at least the resource in times to enviolently heavy sectors Yeah, like metals and mining, I'm just wondering at you know, I know this is becoming a bigger and bigger issue

for managers, for board members, for shareholders, this focus on e s g S in addition to you know, the income statement and the balance sheet and things like that. In the metals and mining space. What's what's the sense you get from from management in terms of their commitment UM. I think medals and minings is again like an industry that's just being early exposed to just because it's amongst

the resource intensive sectors. I think the one thing I've been seeing from metals and mining companies is an increasing focus on safety, so things texicality rates, incident rates, and I'm seeing an increasing number of companies that sort of executive compensation and dial this back to things like safety and to some extend also emission. So you know that compensation and center gives you a dijected sort of monetary bush to do these things. So definitely more of a

focus from that. Yeah, it's sort of like they had to have the right to operate for so long in different countries that they couldn't mess it up. UM that they already have in some ways better practices um or conditioned. I guess all right, she hean thinks a lot, she can contractor joining us Bloomberg Intelligence E s G analysts. Coming up on the program, we look at the revenue

recovery for MGM Resorts. You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies and a hundred and thirty industries. You can access Bloomberg Intelligence through b I go, I'm a terminal, I'm Alex Steel and Paul Sweeney. It's twenty five minutes past the hour, and this is Bloomberg. This is Bloomberg Intelligence with Alex Steel and Paul Sweeney on Bloomberg Brady.

We'll be here each and every week at this time tapping into our Bloomberg Intelligence analysts covering some two thousand companies and industries worldwide. Well as you wind up having a delta variant, we can have it pretty much all across the world. How does that affect different sectors? That's what we've been working on throughout Bloomberg Intelligence. One particular area want to focus on now is the gaming stocks

like MGM, Las Vegas sands. What's the implication there. So let's welcome Bloomberg Intelligence senior Gaming and Lodging analyst Brian Edgar. All Right, so delta varians running rampant here, who's getting

hurt the most? So I think if you look at you know, they look at MGM as kind of a proxy for the industry, certainly like in the second quarter, and thinking about what that means, I would say, you know, the cow market in Asia got hit particularly hard where we're still at a half of twenty nine teams pre pandemic level of gaming activity. Part of that is because there was an outbreak in Guangdong Province, which is a major feeder market for Macau, and that definitely affected some

of the traffic in for it. That's been an ongoing issue for McCallan could be uh for a while. So that resolves when moved to the US. Las Vegas actually has been on a bit of an upswing and close to her back to pre pandemic levels UH, and it benefited when the market went back to full resort documency

back in June. And yes, the question going forward is whether or not um the arrival of the delta variant will affect what we expected to happen, which is, you know, a big uptick in convention activity as we get to the fall months, and that we really have to watch and see carefully. So what are the gaming companies in the big hotels telling the street about that convention business? Because when I think of Vegas again, pretty much every time I've been to Vegas, it's been with a convention.

Um is that business going to come back in this year or or is it delta pushing out next year? So the bookings and again a lot of this is happening as you can understand in real time, but the bookings business on the books for a fall and going

into twenty two have been actually quite strong. The real question is as we approached the actual dates, depending on how companies adjust their travel UH policies, etcetera, whether or not that by the resulting cancelations, but at least the book of business going into this period, as of the company's most recent comments during the earning season, we're actually

quite favorable. So that leads to my next question, how many how much cancelation can these guys stand given the fact that you know that I think the industry has weathered being with all casino was shut back in uh last March through June and has endured pretty significant capacity invitations. Now that the markets back to fulcumancy, I guess you could argue that they've been stress tested quite well, notwithstanding what might happen with the delta variants. So you know,

it is an issue. What has happened during the downturn is that of laws vecas from knights at a company like MGM that we that we would normally be occupied by goers has since taken up by casino customers, which is the less attractive business. It's lower price, and the question is whether or not they have to go back to depending on that lower price casino customer, that leisure customer, if the convention activity is somehow disrupted. All right, so

we've done Macaumy, we'll go back there in Vegas. Now, how about the regional markets around the country. Um, you know they I think they did a little bit better. They're less dependent upon that convention business. What's the outlook for some of the regional gaming? Regional give me out

is actually quite strong. I mean when we look at MGM in the second quarter and we compare all these results to the second quarter of because most of these casinos were closed during the second quarter of When we look at that, the regional gaming revenue is actually up about six percent versus the second quarter of nineteen, which is pretty impressive. And not only that, because the companies are still operating with significantly scaled back wayburn marketing UH,

they seem some at least significant margin improvement. So we're not only seeing a return to pre pandemic levels of revenue in the regional markets, but also very strong margin games and even flow through because of the fact that the cost base has been um uh paired down so significantly during the pandemic. Most other industries are dealing with worker shortages, all have input cost increases, wage increases, et cetera. Um,

how about these guys. Let's I mean, you can go abroad, but I was thinking more specifically of the US and like, who how what do they do to margins? Like how do they pass that on, et cetera. So I think what could happen And it's something that companies have mentioned

is an expense um category that they're watching carefully. Is although most of the hotel companies, for example, we follow manage and receive revenue or profit based fees as a form of compensation uh for managing or franchising those at heels UM, you know there is a chance that's the so called house profit margins, the margins at the hotel owner level could be under some pressure to the extent

that we see rising waiver costs. Of course, they're going into this period just as we said for the CASEDO company is having significantly reduced and uh right size their their cost structure and the labor structure to accommodate a what in many cases has been a smaller audience. So as Awkwudcity begins to return UM and as you see waiver and staffing levels returned to pre pandemic levels, you

know this could be a cost issue. We're going to have to watch to the extent that waiver accounts for such a significant portion of the expense space of both hotel companies and casino companies. Great stuff, Brian super appreciate. Brian Egger Bloomberg Intelligence, a senior gaming and ladging analyst. Coming up on the program, we check in on the buoyant UK housing market and look at how hybrid working

model is impacting European real estate investment trust. You are listening to Bloomberg Intelligence on a Bloomberg Radio providing in depth research and data on two thousand companies and a hundred and thirty industries. You can access Bloomberg Intelligence through b I go on the terminal and Alex Steele and I'm Paul Sweeney. It's thirty nine minutes past the hour, and this is Bloomberg. This is Bloomberg Intelligence with Alex

Steel and Paul Sweeney on Bloomberg Radio. Mention the health of an economy in that it's critical to understand the health of its housing market. Let's do that for the UK. At one point, housing market was on fire, The rental market was on fire, the stocks related to housing building construction were on fire. Are they still well? As Shantara Bali, senior analyst from Bloomberg Intelligence for Business Services that joins us. Now, so just broad stroke, real quick, where's the state of

the housing market within the UK? Hi? There? Um? Yes, So the housing market is still very hot. Actually, um, it's continued to grow strongly, sort of rebounding from the pandemic. Um and that appears to be underpinned for the next I would say, for the next few months. In terms of looking at how the data is progressing. So yeah, um, still still very hot markets. All right, let's talk about the you know, the repair, the maintenance, the improvement of

existing housing stacks and apartments. I mean that's also a hot sector in the U s as people remodel their home because they're gonna be like, well, I've been living in this thing nonstoff for a couple of years and who knows how much longer. So talk to us about that type of spending in the UK and maybe how some investors are looking for exposure. Yeah. So, um, it's I think it's exactly the same trend in the UK.

So that spend fell off quite strongly at the beginning of the pandemic with lockdowns that we had here sort of an early but it's come back very very strongly. Um. The last data point, which is May that we have for UK data is up ninety three, so it is a very very strong year over year, but that's part of a reflection of last year's weakness. But I think you're right in terms of the trend and what what's driving that. Partly there's pent up demand from that lost

a couple of months from the lockdown last year. Partly there's underlying strength in this kind of product given we're in a pandemic and people are spending more time at home and they want to make their homes better. Plus the fact people are not paid taking paid vacations abroad as much as they would normally do, so they have

more money to plow into their houses. And then the final point, as we all leaded to earlier, that when the housing market is strong, this is also good for repair and modeling because the data shows over time that most people spend on their houses when they've just moved. So all of those things of all moving in the right direction currently. I so well know that from moving during the pandemic as well. Um, what stocks are most exposed and what's prized into that? So the company's I

look at which are exposed to this space. Travis Perkins which is the UK's biggest building material distributor, Grasston which is also in the similar market. Um. And then finally and Howden Joinery which is the the UK's biggest kitchen sitting company. So these companies are sort of linked into into this trend. Um they I would say they've recovered

very well in terms of share price. A year. Today they've outperformed the general market by something like um and it's been mirroring the sort of the underlying data they've been raising guidance, et cetera. So I think a strong recovery is priced in um in terms of what's happened to the share prices. But from here it looks like

momentum from an earnings perspective is still pretty good. Um, there's no reason to sort of be nervous about sort of the growth of renovation data or repair data, etcetera. So that there they performed very well, but there's still a more momentum to come. It seems. Yeah, that's kind of where I wanted to go, because I think a lot of people here in the States they're saying, we do have a housing boom here, low mortgage rates, people you know, moving out and wanting more space, and understanding

that that's similar in the UK. The real question though, is how long does it last? When are people are going to be like, wait a minute, I don't want to live in the middle of nowhere. I are in the burbs. I want to be back in the city.

What are some of your companies saying about that? So I think It's a very good question because I think in the short in the short term, everyone is so has been focused on their cash flow and now the rebound that's coming through, so it's kind of sort of getting their business back on track in terms of opening their outlets or paying dividends, and someone say it's very it's still very much about that. But I think the key risk, as you highlighted in the question, is how

how transient is this. Is this something that can last over the medium term or is there something very much just just gonna last while the pandemic is kind of playing through as it were, So once we all return to officers and so on over over time with vaccines and so one, does that then lead to us sort of fall off in UM in this kind of demand

that we're seeing. I think the other thing I would add to that is that house prices have been very strong here in the UK, so UM there's a risk that there may be too strong to support a longer term recovery. So there's a there's a risk that maybe things have got a bit too expensive and that could stall any eventual recovery. But we're not there yet, and in the short term, it seems like everything is moving in the right direction, but there is that question mark

over the medium term. Thank you so much for Intelligence Business Services analyst as Shantara Bali. Let's turn into the world of reats and the impact of a hybrid work world. The question is on the other side of this pandemic, in a delta world, what will the work living at home type of dynamic look like and what does that mean for commercial real estate from where we welcome Sue

moundon Bloomberg Intelligence senior property analysts. So, so, what are the companies saying here as we try on a global scale to reopen, Well, there's they're saying at the moment that, um, their tenants are really just refurbishing their space to try and hope with more meeting rooms, UM, more space to be able to have zoom calls UM and less space per desks UM. And they're busy doing that at the moment,

but not really reducing their space requirements too much. I do think those are over the course of the next eighteen months, maybe two years, as we all come back to work and we all settle down to a more hybrid pattern, that then maybe some more profound impacts on the space that we're using and what the tenants really want to that point, before we get to like what they may want, I guess the question is when do they make that decision because with so much uncertainty, like

our our leases up at a certain point, does something have to be locked in, like what's the time frame for that? Yeah, so the s leases are important in the UK. They can be quite long. In the continent there maybe three years or nine years altogether, but with three or six year breaks UM. So it does vary

enormously what the lease lengths are UM two. But also that the thing is that, um the cost of UM your office is quite low in comparison with the cost of your staff, for example, and so it's probably not the immediate priority. All the occupiers are saying they want to be able to attract talent so they into good place for their you know, their staff to go. But at the same time, you know, if they wanted to cut their costs by they could sub let a very

small portion of their property. So that's a decision that will come further down the line in the you know, working through how we deal with a hybrid environment, hybrid working environment. So the last time I was in London and Middaly was two years ago. Now. Um, I was just amazed that despite Brexit, in all the doom and gloom, all you could see around the city of London was cranes building new structures in the city of London. Outside the city of London. What's the London real estate market

like these days? So actually, for officers, the supply of officers isn't that huge. I know, we had Brexit, um and you know then we have a pandemic, and so

construction has slowed down a lot. For officers. There's a lot of home building going on, and I actually believe that, um, you know, they're the sort of problems that we're facing here is that to come in UM that all the officers have to be UM what we call EPC compliant, which means that they have to be a l B ranked for climate change in their emissions and the energy that they consume. And not much of the London stock

actually compliance with that at the moment. So there is a big concern amongst the community office community as to how much money they're going to have to spend to

get their offices to that state. And I think what that's going to drive one of the reasons that there are others as well, will drive a lot of the these sort of obsolete space, all the stranded assets if you like, because they they're not compliant UM will be converted into residential or to other uses as well, and about well, you know, during that renovation process they'll solve both both the energy compliant problems as well as getting the property use is aligned more with demand, which is

the big thing that we're facing at the moment. So aside from UM longer term having to retrofit their offices to fit the climate rules, UM in an immediate basis in terms of trying and bring people back. You were starting to mention this before, but what are the souped up cool things that officers are going to try and do. Well. They want more immunities in the properties UM. You know, they want some meeting space, and I think there's mixed

use sort of campus style. UM is really gaining some traction. British Land already has you know, sort of campus style properties. You know, it's spit like Canary Walls really which I know, you know well, which has a huge shopping center at the bottom, and it's got lots of residential towers now and as well as offices. So the ability to network

physically as well as online is important. But the other thing is we're finding around Paris and London that there are sort of clusters of certain types of industry or office users. So there's the Knowledge Quarter, there's the Life Sciences Quarter, there's you know, the city the financial Quarter, and and tech quarters obviously as well. And so that the buildings and the communities there will move towards sort

of attracting those employees. And I think that's something that we'll see a lot more of going forward, so much more mixed use places like London. Central Paris has always been much better because it always had a lot of residential in it that the City of London was. You know, I think we've spoken about this before, but the City of London, um, you know, it's very much just offices, and um they've already now said that they're going to

allow planning for more residential. So I think it will be switching buildings to a better use that hazards and then communities. It's near good transport networks, um, there is you got good ventilation for well being, that people can control their mental health. All those sorts of things are going to be really important going forward, and it will take a year or two, I think for that to go through the system and for us to really understand

how much office space is needed. But they'll be space needed for other things, all right, So thank you so much. We really appreciate that, Sue Bunden, Bloomberg Intelligence, Senior Property Analysts. That's this week's edition of Bloomberg Intelligence on Bloomberg Radio, providing end upth research and data on two thousand companies and industries. And remember you can access Bloomberg Intelligence through b I go on the Terminal and alex Steel and

on Paul Sweeney. It's fifty seven minutes past the hour, and this is Bloomberg