Morningstar | Ardent Leisure's Fiscal 2018 Result a Nonevent as Main Event Remains the Focus. See Updated Analyst Note from 22 Aug 2018
Ardent Leisure's fiscal 2018 result was a nonevent. Most of the key financial figures were released less than a month ago, with a reported net loss of AUD 91 million within the AUD 84 million-94 million guidance range, while divisional earnings were also broadly in line with prior projections. Critically, management provided no fresh disclosure to justify a change to our AUD 2.00 fair value estimate for the group.The slowdown in Main Event's constant-centre revenue growth to 0.4% in the first six weeks of fiscal 2019, from 1.3% in the first half of fiscal 2018 and 1.9% in the second half, may be a source of disappointment. However, week-to-week volatility on this metric is not something we lose sleep over. What we are focused on is the growth opportunity for Main Event in the U.S. "eat-a-tainment" category, underpinned by an expanding venue footprint and improving sales density within existing venues. As such, we retain our five-year EBITDA CAGR forecast of 16% for the division.
As for theme parks, the slower-than-expected recovery has been well documented, with year-on-year growth in the June half for visitations (up low-double-digit percentage points) and per capita spending (up low single digits) relatively tepid. Still, we retain our expectation for the division reaching EBITDA of AUD 32 million in five years' time, as sentiment and attendance gradually recover to normalised levels, driving a lift in margin to 30% (near the historical six-year average of 32% before the Dreamworld tragedy).
Securities in no-moat-rated Ardent are trading at a 9% discount to our intrinsic assessment, with uncertainties over the Dreamworld recovery and execution of Main Event's growth strategy in the U.S. providing ammunition for the sceptics. However, management is now well resourced to tackle these challenges, backed by a solid balance sheet that ended fiscal 2018 with net debt of just AUD 11 million, equating to net debt/normalised EBITDA of just 0.2 times.
Ardent Leisure invests in and operates leisure and entertainment businesses in Australia, New Zealand and the U.S. Co. is organised into the following divisions: Marinas, which comprises seven d'Albora Marina properties, located in New South Wales and Victoria; Family entertainment centres, which comprises of 27 Main Event sites in the U.S.; Bowling centres, which comprises 48 bowling centres and six amusement arcades located in Australia and New Zealand; Theme parks, which comprises Dreamworld and WhiteWater World in Coomera, Queensland and the SkyPoint observation deck and climb in Surfers Paradise, Queensland; as well as Health clubs, which comprises 76 clubs in Australia.
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