Australia | Apr 03 2012
– Expansions to boost earnings for Ardent Leisure
– Theme Park returns also improving according to Deutsche Bank
– Stock attractively priced, dividend yield another positive
– Deutsche reiterates a Buy rating on Ardent
By Chris Shaw
While poor weather has impacted on theme park earnings for Ardent Leisure ((AAD)), the group's expansion plans for its bowling, gym and Main Event businesses continue to offer earnings growth potential, reports Deutsche Bank.
As the stockboker notes, three new bowling centres, three Laser Skirmish spaces and one bowling centre refurbishment are planned between now and the end of FY13, along with four additional gyms and two Main Event centres.
This pipeline suggests an incremental $5.6 million in EBITDA (earnings before interest, tax, depreciation and amortisation) terms, which would represent 7% growth in FY13. In earnings per share (EPS) terms this should translate to growth of 9% on Deutsche's estimates.
Given relatively conservative underlying organic earnings growth guidance, Deutsche Bank sees scope for Ardent Leisure to achieve as much as 16% growth in EPS in FY13. The broker's forecasts reflect this, as its estimates at present assume 18% growth in EPS in FY13.
Even if growth were to fall short of this forecast and come in at 16%, Deutche estimates Ardent Leisure is trading on an earnings multiple for FY12 of just 7.3 times, which equates to 9.7 times on a tax adjusted basis. This is based on EPS forecasts for Deutsche of 13c in FY12 and 15c in FY13, while consensus estimates according to the FNArena database stand at 11.8c this year and 12.7c in FY13.
Funding for this growth appears achievable, as Deutsche expects expanding by two gyms, two bowling centres and two Main Event centres each year for the next few years would require $24 million in growth capex.
Of this, around $15 million would come from the dividend reinvestment plan and some from retained earnings, leaving only around $9 million in debt funding required. This level of debt would only lift gearing to 30%, which is within Ardent Leisure's target range of 30-35%.
With respect to the theme park operations, Deutsche is equally positive on the outlook, as Easter will see the opening of the DreamWorks Animation precinct, while the recently opened SkyPoint Climb should continue to boost both revenues and earnings.
January performance for the theme parks was up 8.7% on the prior period and heading into the key Easter period Deutsche sees some upside risk to earnings for the theme park division.
Adding to the earnings growth potential identified by Deutsche is an attractive dividend yield, estimated by the broker to be 12.3% on a headline basis and 8.6% in tax adjusted terms. The "adjustment" reflects the fact the dividend is not franked.
With valuation undemanding Deutsche retains a Buy rating on Ardent, one matched by both RBS Australia and UBS among brokers in the FNArena database to cover the stock. As with Deutsche, UBS and RBS both see value at current levels, especially with the second quarter of FY12 showing what the latter viewed as a sustainable pick up in earnings performance.
Three brokers in the database rate Ardent Leisure as a Hold, JP Morgan given ongoing concerns over the outlook for theme park, bowling and health club earnings and Macquarie given the view a re-rating is unlikely in the current operating environment.
The FNArena database shows a consensus price target for Ardent Leisure of $1.30, with targets ranging from Macquarie at $1.10 to UBS at $1.45.
Shares in Ardent Leisure have traded within a range of $1.005 to $1.59 over the past 12 months. Yesterday's closing price implies upside of around 16% relative to the consensus price target in the FNArena database.
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