Entering a New Era
In the wake of the 2016 tragedy, Ardent Leisure (ASX:AAD) has taken the steps to change management to better focus on improving its safety standards and win back the trust of the public. An interesting development is also taking place with rival, Village Roadshow, looking to focus on the Asian market which may herald in a new era for local Theme Park players.
What’s New?
There have been quite a few updates since our last coverage of Ardent Leisure with the notable completion of its Bowling & Entertainment division (“B&E”) divestment as well as changes at the executive level.
In our prior coverage (FAT-AUS-856 and FAT-AUS-863) we noted that the company was selling off its B&E unit to The Entertainment and Education Group (TEEG) for a total consideration of A$160 million on a debt and cash free basis. TEEG is a partnership between Quadrant Private Equity and the Timezone Group.
We believe that Ardent (ASX:AAD) has done well on the price for the B&E business as it pegs the valuation at 27.1x FY17 Core EBITDA and 32x FY17 Core EBIT. This transaction will strengthen the company’s balance sheet and free up capital to focus on the higher yielding Main Event centres and rebuild the Theme park brand especially in the wake of the 2016 tragedy that took the lives of 4 Dreamworld Theme Park guests.
At the end of April, the company announced that it had completed the sale of the B&E division to TEEG and expects book a profit before tax in the range of $22 million to $26 million on the sale, with the net proceeds of circa $150 million (after sale related items) to be used to repay existing bank debt.
Image Credit: Main Event Entertainment, West Chester, OH Store
Current chairman Dr. Gary Weiss commented on the sale and said “the sale of the Bowling & Entertainment Division will strengthen Ardent’s balance sheet and enhance the Group’s capacity to continue the roll out of Main Event entertainment centres in the United States and fund new attractions at Dreamworld. “
Changes at the Top
Mr Craig Davidson (Dreamworld CEO) has ended his tenure last week as the inquest into the deaths of Dreamworld guests Cindy Low, Kate Goodchild, her brother Luke Dorsett and his partner Roozi Araghi showed some evidence that the ride should not have been operating at the time of the tragedy.
The image below shows Mr Davidson (below left) and Dr Weiss (below right).
Image Credit: Australian Associated Press
Following Mr Davidson’s departure, the company has announced that it is undergoing a worldwide search to find a replacement. The company has also been required to make some significant changes to how it runs its Theme Park operations and implement the Coronial Inquest recommendations in consultation with Workplace Health & Safety Queensland.
The company will also be establishing a “Global Best Practice” initiative with 3 executives to focus exclusively on prioritising the ongoing implementation of best-practice safety initiatives, including continuous enhancements in ride safety. The team will also work with external specialists on improving procedures and safety systems for the parks.
Dr Weiss has commented that: “Like everyone else, I have been deeply concerned by what has emerged from the inquiry over the past fortnight, and this is why it is important that we listen to the evidence, understand all we can and apply the lessons learned to ensure such accidents never occur at our parks,”
Dr Weiss also added: “We will continue to fully cooperate with the Coroner and counsel assisting throughout further Inquest hearings and implement all recommendations in consultation with Workplace Health & Safety Queensland and the theme park industry. I can assure the public that our focus on safety improvements and enhancements has been ongoing for some time and the new executive appointments will continue to drive that process.”
In the interim period, while the company seeks out a replacement, the Board has appointed Ardent’s Group Chief Experience Officer, Nicole Noye (pictured below) to assume the role of Acting CEO of Theme Parks. She was formerly CEO of Ardent’s B&E division and has a proven track record as well as a strong relationship with the Board and Dreamworld’s leadership team.
Image Credit: Nicole Noye
Dr Weiss commented on the appointment noting that: “Nicole brings a wealth of experience, not only as a CEO with significant leisure and entertainment experience, but also leadership in customer experience and cultural change that will set the framework for our recovery and our focus on the type of continuous improvement that delivers global best practices”.
Ms Noye will be supported by the two new executive appointments of Phil Tanner as Director of Safety and former Queensland Police Inspector Mike McKay APM as Director for Culture, Community and External Relations.
The inquest has been adjourned until 08 October.
That aside, the company has also made some new appointments in its US-based Main Event Entertainment business. According to the company, it has promoted Mr Darin Harper, CFO for the Group’s US-based Main Event Entertainment business to assume the role of the Group CFO.
According to the company, Mr Harper is a highly experienced senior executive who has been with the Group since March 2017 and will continue to act as CFO for Main Event alongside recently appointed CEO (Main Event), Mr Chris Morris. Mr Harper will remain based in Dallas and regularly visit the Australian Theme Park business as well as the Sydney Head Office.
Sector Related Updates
In other updates that could mark some new trends in the Theme Park sector, Ardent Leisure rival, Village Roadshow (ASX.VRL) announced yesterday that it will offload its Wet’n’Wild Sydney waterpark to Spanish international entertainment operator Parques Reunidos (BME.PQR) for a sum of $40 million.
According to the terms of the deal, Village Roadshow expects the payment to take place in the 1Q of FY2019 and it will include a variable compensation based on the waterpark’s revenue up to 30th June 2020. The proceeds will be used to reduce Village Roadshow’s debt levels.
A closer look at the deal indicates that the tragedy in the Dreamworld Theme Park had some greater repercussions impacting the rest of the industry as Wet’n’Wild Sydney’s earnings dropped 66% to $3.1 million by 30th June 2017, from $9 million of the preceding year. More recent interim results showed an EBITDA loss of $1.6 million.
According to Village Roadshow, a significant cause of the fall in attendance levels and season pass sales was the negative consumer sentiment and increasing distrust of Theme Park operators on maintenance with more parents refusing to take their children on rides – not a surprise in our view.
Village Roadshow seems to be less optimistic about the Australian theme park industry going forward as it has now channelled its focus towards Asia with the recent opening of Wet‘n’Wild Haikou waterpark on the Chinese island of Hainan at the end of April and announced in March that full-year results for its theme park division would fall below previous targets.
We believe that if trust from the public doesn’t improve, the sector may see some consolidation or look towards different market such as Asia to deliver growth.
Turning to the daily chart, overhead resistance is situated at the January intra-month high of $2.10. Before that lies the late February high of $2.01. Therefore, in order for the short-term technical landscape to further strengthen, a sustained break above this price range is required. Medium-term momentum (for now) is slightly in favour of the bulls, as the share price remains above the 50 (red line) and 200 (green line) day moving averages.
With reference to the monthly chart, a protective level of support is indicated at the 78.6% Fibonacci retracement of $1.66 as marked by the blue set of retracements, should the bears remain lurking over the near term. In order for the long-term technical outlook to improve, a decisive clearance of resistance situated between $2.18 and $2.27 is required. This consists of the June 2017 high and 38.2% Fibonacci retracement as represented by the red set of retracements respectively. Should this favourable scenario unfold, this this would increase the probability of further gains to be had over the broader horizon.
Summary
In the wake of the 2016 tragedy, Ardent Leisure (ASX:AAD) has now taken the steps to change management to better focus on improving its safety standards and win back the trust of the public. An interesting development is also taking place with rival, Village Roadshow, looking to focus on the Asian market which may herald in a new era for local Theme Park players.
Amidst such changes, we continue to remain optimistic for the tremendous growth potential on offer at the Main Event business and as such retain our HOLD rating on Ardent Leisure (ASX:AAD).
Disclosure: Ardent Leisure (ASX:AAD) is held in the Fat Prophets Income and Australasian Share Model Portfolios.
