MGM Resorts International says it will cut costs and streamline its business to make the company more profitable. In a written statement issued on Thursday, the global casino operator based in the United States said it expected the MGM 2020 plan to lead to a US$200-million boost to adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) next year and a US$100-million increase to the same metric the year after.
MGM 2020 provides for organisational changes to improve operating efficiencies at its 28 resorts. Labour cost savings will account for half the extra adjusted EBITDA expected next year, sourcing will account for one-quarter and revenue optimisation will account for the rest, said the company.
The firm says MGM 2020 will provide for investment in the digital transformation of the company to drive revenue growth. The company says it will innovate to elevate the guest experience through data, pricing, digital and loyalty capabilities. This is expected to mean US$100 million of additional EBITDA by 2021.
MGM Resorts is the parent of casino operator MGM China Holdings Ltd, which controls two properties in Macau, MGM Macau on the peninsula and MGM Cotai, the latter opened in February last year.
“We are taking the next step in our evolution as an organisation. We are building on the strong foundation that we have solidified over the past few years, to deepen our efficiencies and achieve sustained growth and margin enhancement,” said MGM Resorts chairman and chief executive Jim Murren in a prepared statement. “MGM 2020 is intended to further transform the way we operate and leverage the most effective operational architecture for our company.”
Mr Murren stated: “We had a solid finish to the year in 2018, and as we look to 2019 and beyond, we remain confident in the ramp of our newly opened properties MGM Cotai, MGM Springfield, Park MGM and NoMad Las Vegas. We will enter two attractive markets in New York and Ohio.”
He added: “We will continue to work toward cementing MGM Resorts as the leader in sports, following the milestones achieved in 2018 with GVC and the professional sports leagues. We remain focused on pursuing an integrated resort opportunity in Japan. MGM 2020 reinforces our commitment to increasing margins and maximising profitability.”
Stockbrokers responded approvingly to the announcement of MGM 2020 in the notes issued on Thursday.
Union Gaming Securities LLC has raised its price target for MGM Resorts, with a “buy” recommendation.
“We are confident in management’s ability to execute this plan, given their track record,” the Union Gaming note says. “Shares of MGM should work well in the first half of 2019 on a solid fourth quarter of 2018 in Las Vegas, improving visibility for the first quarter of 2019, a ramping MGM Cotai with premium mass and VIP hardware coming online, and now another round of profit improvements.”
The stockbroking arm of Nomura has a “buy” rating for MGM Resorts International stock. But its note says: “We believe that there could be upside to our above-consensus estimates and target.”
Nomura Instinet concludes: “Over the past three to six months, investors have been agitating for more operating efficiency and margin expansion, and we believe that this morning’s announcement is MGM’s commitment toward achieving those objectives.”
The stockbroking arm of Deutsche Bank says it believes MGM 2020 is a positive catalyst for the price of MGM Resorts stock.
“We think MGM’s fourth quarter of 2018 performance, relative to its guidance and consensus forecasts, will also serve as a positive catalyst for shares. It is worth pointing out that management noted ‘a solid finish to the year in 2018’,” the Deutsche Bank note says.
MGM Resorts said late last month it had completed arrangements that will see it borrow more money. The company said it expected to use the money to refinance other debts; fund recently announced transactions; and cover general corporate purposes.
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