Australia | Oct 20 2014
-Main Event key to upside
-More sites envisaged
-Focus on medium term
By Eva Brocklehurst
Ardent Leisure's ((AAD)) earnings are accelerating, as the company rolls out new sites within its Main Event, or family entertainment division, in the US. Operating results to date have exceeded expectations, including the historical return on investment hurdles.
Bell Potter has taken the opportunity to initiate coverage on the stock with a Buy rating and $3.47 target, expecting the earnings impact of Main Event will be a catalyst for share price performance. The broker's base case scenario assumes the Main Event business has 90 operating sites by June 30, 2024. July revenue of US$9.6m was up 25.3% on the prior July, with constant centre revenue up 13.3%. Four new centres opened recently, taking the total portfolio to 17. As Main Event has exceeded expectations the company has planned a material increase in new sites. Construction is advanced on a further three sites which will open in FY15, negotiations are advanced on seven new sites for FY16 opening and preliminary investigation is underway on eight new sites for FY17 opening.
In the wake of the FY14 results, Macquarie was less inclined to believe there would be further material roll out of Main Event, with the outlook all about execution. To this end the broker has a Neutral rating, awaiting evidence of how the expansion is progressing.
Meanwhile, the health club division is also expected to return to mid to high single digit earnings growth after the acquisition benefits in FY15 are realised, although Bell Potter also rates the probability of further acquisitions as quite high. The company has stated it expects to continue increasing the portfolio by two to three centres per year through greenfield development and bolt-on acquisitions. Ardent acquired Fitness First centres in Western Australia earlier this year and expects these to deliver synergies in FY15.
The company's theme parks are expected to be supported by resilient visitor numbers. The outlook for interstate attendance is challenging, given the shift away from domestic holiday travel to international, in Bell Potter's observation. July revenues were marginally lower than at the same time in 2013 but company has said it will focus on a digital and direct sales strategy to target new business cost effectively and assist in improving yield.
Bowling is the main area where there was not much revenue improvement in FY14. Bell Potter still expects this division will show signs of improvement following recent restructuring and change of management. The broker expects marinas will be the most subdued of the four divisions. Still, the company reported that strong-than-expected winter occupancy delivered solid trading momentum into FY15.
CIMB retains an Add rating, believing investors are more willing now to focus on the medium-term growth profile following the strong performance in FY14. The stock has four Buy ratings and one Hold on the FNArena database. The consensus target is $3.11, suggesting 3.1% downside to the last share price. Targets range from $2.70 to $3.30. The dividend yield on FY15 forecasts is 4.7%, rising to 5.4% on FY16 forecasts.
See also, Ardent Leisure Still Appeals on August 19 2014.
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