Company Reports

Coast Entertainment's breakeven fiscal 2024 first-half normalized EBITDA is disappointing. It is becoming monotonous segregating one-off events negatively affecting performance. It dates back to the 2016 Dreamworld tragedy, through covid-19, and to current economic uncertainty hitting discretionary spending and cost inflation. We can now add abnormally bad weather to the mix, wiping out robust visitation growth prior to storms wreaking havoc at Christmas and New Year.

Our constructive view on Coast Entertainment's fundamentals is moderated by the wider macroeconomic factors that affect its theme park operations and the current restructuring efforts to restore earnings after the recent upheavals.

Shares in renamed Coast Entertainment, previously known as Ardent Leisure, are at a 25% discount to our AUD 0.60 fair value estimate. The recent price underperformance is such that the stock is 14% below the group’s net tangible asset backing of AUD 0.53 per share—a rare find in modern markets for any Benjamin Graham disciples.

Our constructive view on Coast Entertainment's fundamentals is moderated by the wider macroeconomic factors that affect its theme park operations and the current restructuring efforts to restore earnings after the recent upheavals.

Twelve months on from when coronavirus first hit our shores, no moat-rated leisure shares have all rallied strongly to be at or above our intrinsic assessments. Ardent Leisure is up 343% to AUD 0.93 (versus our AUD 0.55 fair value estimate), Event Hospitality is up 50% to AUD 11.23 (AUD 11.20 fair value estimate) and Flight Centre is up 98% to AUD 17.63 (AUD 18.00 fair value estimate). The recovery trade has been buoyed by easing pandemic fears, the gradual vaccine rollout and an accommodative equities market.

Our positive view on Ardent Leisure's underlying fundamentals is moderated by the wider macroeconomic factors that influence its operations and the current restructuring efforts to restore earnings after the recent upheavals.

Ardent Leisure reported a solid third-quarter fiscal 2014, broadly in line with our expectations. Group revenue increased 12.7% on the prior corresponding nine-month period as the company continues to expand its portfolio of health clubs and added one venue to grow its bowling portfolio. On a like-for-like basis, health clubs and Main Event continue to perform strongly, reporting revenue growth at mid-single-digit percentages. Theme parks and marinas grew revenue in the low single digits. Bowling continues to struggle, reporting low-single-digit revenue decline. Management noted a continuation of these revenue trends for most segments at the start of the fourth quarter.

Ardent Leisure reported a solid first-half fiscal 2014, in line with our expectations. Group revenue increased 14.1% on the prior corresponding quarter to AUD 250.6 million, driven by an expansion of its portfolio of health clubs and family entertainment centres (Main Event). Underlying earnings before interest, tax, depreciation and amortisation, or EBITDA, grew by 13.9% to AUD 59.8 million, in line with underlying revenue growth. Performance was mixed across business segments with health clubs being the standout, reporting an EBITDA increase of 19.3% on the back of a successful restructure to outsource personal trainers. Main Event was also strong as the introduction of full-service casual dining drove an increase in foot traffic volumes. Constant-centre revenue grew 3.9%. Across the group, management noted a positive start to second-half fiscal 2014, with January trading conditions positive.

Ardent Leisure provided a positive trading update for first-quarter fiscal 2014 just prior to its annual general meeting, albeit in line with our expectations. Group revenue increased 19.8% on the prior corresponding quarter to AUD 126.2 million as the company expanded its portfolio of health clubs and family entertainment centres (Main Event). The growth in revenue drove earnings before interest, tax, depreciation and amortisation, or EBITDA, growth by 19.4% to AUD 32.3 million. On a constant-centre basis, performance was mixed across business segments. Health clubs and Main Event continue to perform solidly, reporting increases in earnings before property costs of 4.6% and 4.0% respectively. Theme parks reported an EBITDA increase of 5.1%, although this was driven by operating efficiencies as revenue was flat. We expect increased advertising in conjunction with the Queensland government to increase foot traffic for the remainder of fiscal 2014. Bowling continues to struggle and on a constant-centre basis reported a decrease in earnings before property costs of 4.9% due to unseasonably warm weather and the timing of the September/October school holidays. The marina division was also weak with higher property costs reducing EBITDA by 4.8%. Management noted a positive start to second-quarter fiscal 2014 with all businesses recording further trading improvements during October.

Ardent Leisure's fiscal 2013 operating earnings of AUD 13 cents per security (cps) were up 7% on the prior year. Operating profit was up 22.3% to AUD 50.3 million, mostly due to acquisition of more fitness centres. Divisional performance was mixed, with earnings before interest, tax, depreciation and amortisation (EBITDA) falling 14% for bowling, flat for marinas and rising 5.4% for theme parks. Fitness and Main Event both achieved high EBITDA growth, reflecting additions to their respective portfolios.