Australia | Mar 12 2007
By Chris Shaw
FNArena’s Sentiment Indicator has a maximum reading of 1.0, which indicates universal Buy ratings by the brokers and equity researchers covering a stock. Few companies achieve such a rating, but Macquarie Leisure (MLE) currently does by scoring a perfect five for five in positive recommendations.
The company, which has an array of businesses ranging from tenpin bowling centres to marinas to leisure parks, recorded a profit in line with expectations for the December half, but this doesn’t show the upside potential from what GSJB Were sees as a possible earnings upgrade cycle starting with FY07 earnings.
One key to the result was higher margins, especially at the core Dreamworld operations, which currently accounts for about 58% of group profits. The broker expects the theme parks will receive an additional boost from the opening of WhiteWater World, which commenced operations a few weeks ahead of schedule.
This is important, as JP Morgan notes attendance numbers at Dreamworld declined in the period, which while worrying may be reversed going forward as management has indicated it intends to lift its marketing spending and the WhiteWater attraction generates increased interest.
ABN Amro expects such an improvement in the performance of the theme parks, while it also sees stronger contributions from the Bowling division as a number of refurbishments have been completed and further redevelopments should continue to boost margins.
The broker is equally positive on the marina operations for the same reason, as the company has completed a number of redevelopments and this should result in increased contributions.
Longer-term the company also offers a US growth option via its Main Event entertainment centres, which are set to expand significantly in numbers in coming years. While only two new centres are expected to open in the next year the broker notes management is targeting around 20 new centres annually in the medium-term.
This leads it to forecast solid earnings growth in coming years, as from an expected profit of $37.4m this year the broker sees earnings in FY08 of $47.3m, rising to $52.5m in FY09. This equates to earnings per share of 17.8c, 22.6c and 25.1c respectively, which compares to the forecasts of SB Citigroup of 19.1c, 24.3c and 27c. By way of comparison, Thomson One Analytics shows median earnings per share forecasts of 17c, 21c and 24c or 18c, 24c and 27c on a fully reported basis.
Adding to the stock’s attraction is the yield, ABN Amro estimating dividends of 16.5c, 20c and 22.5c will be paid from FY07 to FY09, putting the stock on a yield of 5.8% this year and more than 7% next year, while JP Morgan expects a 6.9% yield in FY08.
Gearing is also a point of interest, as it currently stands at around 24% compared to management’s target of 30-35%. This suggests potential for further acquisitions, which would provide a boost to earnings.
The average price target on the stock according to the FNArena database is $3.16, which matches the median target of Thomson One. The shares are currently trading at $2.91, which is unchanged on the day and compares to a trading range over the past 12 months of $2.24 to $3.19.