EUR 850.00 For Business Accounts Only

Morningstar | Admission Growth Wanes at ISC, Incentivizing Shareholders to Support Privatization

With admissions falling 5% in narrow-moat International Speedway’s, or ICS', second quarter and 4.5% year to date, it’s clear that the business has struggled to attract race car enthusiasts to the track consistently. We expect competitiveness and low switching costs across leisure activities to restrict the company’s ability to grow sales as rapidly as in the past, which should hold return on invested capital, or ROIC, metrics to a mid-single-digit level. We don’t plan any changes to our five-year forecast, which includes sales growth of 2.5%, an average operating margin of 16.5% and earnings per share growth of 10%. We also plan to maintain our 2019 forecast calling for $694 million in revenue, an operating margin of 15.5% and EPS of $2.02, in line with company guidance offered, which included revenue of $685 million to $705 million, an operating margin of 13.5%-16% and EPS of $1.85-$2.15. We therefore plan to maintain our $45 fair value, which assumes ISC goes private, and view shares as fairly valued.

The company continues on its path to a partnership with NASCAR and expects to file the paperwork with the SEC shortly. After the SEC evaluation, ISC plans to send a proxy to outside shareholders to approve the final transaction to take the business private at $45 per share. Given languishing admission growth, the risk of a lower broadcasting revenue contract in 2024, and ROIC performance below the company’s weighted average cost of capital, we believe there is sufficient evidence to support shareholder approval of the deal once the proxy is published. Although ISC still anticipates the deal will close by fiscal year-end, we believe this could extend to 2020, depending on how long it takes for the SEC to respond to ISC’s filing and the amount of correspondence ISC will need to respond to SEC comments.