Ardent Leisure: Interim result 2017

After the tragic events at Dreamworld, there was little doubt Ardent Leisure's first half performance would be poor (see Table 1).

However, judging by the subsequent 24% fall in its share price, it was even worse than most expected. That the Board slashed the company's interim dividend clearly didn't help either. 

Dreamworld debacle

Not surprisingly, the accident at Dreamworld that killed four people and resulted in both it and WhiteWater World closing for 45 days dominated the result. Attendance was down significantly once the parks reopened, with 27% fewer people entering the gates compared to the prior corresponding period.

This resulted in revenue falling 28%, to $42m. With Ardent continuing to pay many of its usual costs, including wages, during the period the parks were closed, the division's earnings before interest, tax, depreciation and amortisation (or EBITDA) fared much worse, falling 72% to $5.9m.

However, management remains optimistic about its future. Since Dreamworld reopened on 10 December, visitation has improved month on month as safety fears subside and more rides are re-opened following safety inspections. While attendance in December 2016 was down 64% compared to the prior December, this had declined to a fall of 36% in mid-February compared to February 2016.

And although Ardent could still be hit with penalties from various ongoing investigations, including a coronial inquest, into the Dreamworld tragedy, we expect the Theme Parks division to recover eventually.

Bowling & Games

Elsewhere, the Bowling & Games division continues to be restructured, with the company looking to divest three more 'non-core' AMF centres in addition to the one sold in the first half.

Ardent is converting its remaining centres into 'multi-attraction entertainment centres' similar to its US Main Events business. That is, they're being converted to offer attractions such as amusement arcades, karaoke and better food and beverage options in addition to bowling. Despite falls in headline revenue and EBITDA, continued increases in like-for-like sales, up 4.1%, bode well for this division.

Main Event underwhelms

Unfortunately, the company's Main Event business continues to underwhelm. Although a 35% rise in revenue and 21% increase in EBITDA sound impressive, this was entirely due to the increase in centres since the prior corresponding period.

By contrast, like for like sales once again fell, by 2.9%, due to weak consumer confidence in relation to the US Presidential election, competition and the effect of subdued oil prices on Texas and surrounding regions. 

Ceasing coverage

With the sale of the Health Clubs and Marina divisions, the Main Event business now represents 63% of the company's underlying EBITDA.

The company labels this business as 'high growth' and while it could benefit from the proposed Trump tax cuts, we struggle to see how it has any competitive advantages against the likes of Dave & Busters, AMC Entertainment and Chuck.E.Cheese. 

As such, it requires good management and we also have concerns on that score. 

In any case, even with recent falls in Ardent's share price, we don't believe the company represents good value at current prices. As such, we think there are better opportunities elsewhere and so we are CEASING COVERAGE.