ASX code: AAD
Share price: $2.52
Industry: Consumer Services
Forecast FY2016 Distribution: 13.5c
Market wide volatility has become an unfortunate hallmark of 2015, with the ASX200 trading in a peak to trough range of nearly 20 per cent over the past 12 months. Some argue this simply reflects a market that has become excessively focused on short term outcomes.
We suspect trading in Ardent Leisure Group (ASX Code: AAD) is symptomatic of this recent phenomenon, which despite being well placed to grow earnings over the medium term, has come under pressure following its AGM update. In our view, this may have opened up a window of opportunity for investors seeking a solid mix of regular income and long term growth potential.
AAD is a specialist operator of leisure and entertainment assets across Australia and the US. The group operates the Dreamworld and WhiteWater World theme parks, SkyPoint, AMF and Kingpin bowling centres, d’Albora Marinas and the Goodlife health club business across Australia. AAD also operates the Main Event family entertainment centres in the US.
The group continues to deliver growth across most business divisions, with first quarter revenues up 19 per cent to $166m and divisional EBITDA up 9 per cent to $37.2m. The stand out business unit in terms of growth is AAD’s US business, Main Event, which delivered earnings growth of 28 per cent when compared to the prior corresponding period.
Of greater importance to the long term value of AAD is the significant potential to expand the Main Event business across the US over the coming years. Management remain intent on expanding the centre footprint from the existing base of 20 centres to 35 over the next two years.
This looks likely to occur concurrently with an increasing average per centre earnings run rate. In aggregate, this bodes well for earnings and distribution growth over the medium term.
In our view, AAD is also well positioned to benefit from the continuing depreciation of the AUD. This not only delivers a translational benefit from its growing USD earnings base but also supports increased visitation for its core domestic tourism-focused businesses.
Importantly for income focused investors, AAD has developed a strong track record of paying out distributions on a consistent basis, having delivered bi-annual distributions to owners since listing in 1998.
As is typically the case, AAD will likely go ex-distribution next month. We believe AAD will declare a distribution of approximately 7 cents per security. With a solid yield of 5.4% coupled with a potentially long growth runway, we believe AAD is well worthy of consideration for long term investors.
Dividend Detective written by Adrian Ezquerro, Senior Analyst. He owns AAD securities.