Australia | Nov 03 2010
By Greg Peel
If ever there were an investment which was likely to suffer the effects of a GFC, even in Australia where technically a recession never actually occurred, it was units in the Ardent Leisure Group ((AAD)), formerly the Macquarie Leisure Trust Group until 2009. Ardent assets are all about fun, fun, fun, and GFC's simply aren't.
One might be tempted to suggest it's been a rollercoaster ride for Ardent since it shook off the stigma of its “Macquarie Model” tag, but then one would have to be shot for the use of a painfully obvious pun. Ardent's assets include the big Dreamworld and WhiteWater World theme parks in Brisvegas, AMF and Kingpin bowling clubs and Goodlife health clubs across the country, d'Albora Marine, and Main Event family entertainment centres in the US.
It's not cheap to pack the kiddies off to a theme park at the best of times, and Ardent's flagships saw a lot of tumbleweeds roll through in FY10. Bowling alleys may be quietly regaining in popularity since their heyday in the 60-70s when this correspondent spent half his primary school birthday parties at one, but leisure boating and anything connected to conspicuous entertainment in the unemployment-stricken US were always going to be among the first items struck off the family budget after 2008. Rampant ticket discounting among entertainment establishments and theme parks resulted, cutting into what little profit potential there was.
Let's just say FY10 was possibly about as bad as it's ever going to get for Ardent.
Yet the units are projected by analysts to provide a consensus yield of 10.0% in FY11 and 11.4% in FY12. Rates may be rising in Australia, but double digits are nothing to be sniffed at when investment in growth stocks remains fraught with lingering danger. One must always be very wary when distribution yields look just a bit too high, because it usually means something very risky lies underneath. For unit trusts that risk was once clearly overstretched debt, but Ardent's gearing ratio is currently a comfortable 32%. Ardent management intends to expand the business organically and has set a target zone of gearing at 30-35%.
So yes – it looks like a good yield. But Ardent's unit price has fallen from a peak (as Ardent) of above $1.80 as we entered 2010 to under $1.00 and despite the index now trading back towards its April peak, Ardent seems pretty stuck at around $1.10. Hence the good yield.
But the six brokers in the FNArena database covering the trust all agree that the first quarter of FY11 produced a very encouraging result for Ardent. It would seem the tide may have turned. Analysts are expecting a steady return to more normal earnings from here.
But one quarter does not a summer make, nor a whole year. We already know that the December quarter will be hampered because south east Queensland experienced Biblical weather in October in which one might simply have stood outside in the gutter for free rather than pay good money to visit WhiteWater World. And we know that given the ensuing strength in the Aussie dollar, it's now nearly as cheap to visit Disneyland in LA as it is to travel to the Gold Coast. Cartoon characters and superheroes must just sigh as fully laden planes groan out of Brisbane and overhead before returning empty.
Not to mention that a strong Aussie is all about rising interest rates, which also tighten the local purse strings.
But the positive signs are nevertheless there for the patient investor who likes a bit of yield behind a longer term growth prospect. The new Tower of Terror II has proven a big draw card, as one might naturally assume, albeit a couple of analysts fear early popularity in Q1 might have sucked a bit of potential patronage from Q2. Beyond that, Ardent is leveraged to eventual economic recovery (or simple economic growth in Australia's case) and most likely has seen its trough.
Ardent is showing a Buy/Hold/Sell ratio in the FNArena database of 3/3/0 with a twelve-month consensus target of $1.19, 9% above the current trading price.
