ASX Code: AAD
Security price: $2.18
Industry: Leisure
Forecast distribution: 13 cents per security
Ardent Leisure owns some of Australia’s most high-profile theme parks and attractions, including Dreamworld and WhiteWater World.
But security holders must have recently felt they were plunging down one of Dreamworld’s scary roller-coaster rides.
Ardent’s securities crashed almost 30 per cent after it announced that longstanding CEO Greg Shaw would be replaced by former magazine editor, Deborah Thomas.
The move shocked the market. Eyebrows were raised at the timing and Thomas’s relative lack of operational experience in the leisure industry.
Despite the uncertainty, the price fall gives income investors a good opportunity to buy securities with long-term growth potential from its US assets, strong cashflow and a solid distribution yield.
Ardent is a stapled security. It was originally known as Macquarie Leisure Trust Group before it split from Macquarie in 2009. In addition to its high-profile theme parks, Ardent operates other assets including the Kingpin bowling centres, Goodlife Health Clubs, and Main Event Entertainment, a fast-growing chain of indoor entertainment centres in the southern states of the US. The company is effectively evolving from being a real estate company to a consumer-focused group.
Ardent’s securities traded strongly last year; they hit a high of $3.49 last October after starting 2014 at $2. But in February 2015, investors were disappointed with the group’s interim result, particularly the performance of its Health Clubs division.
Ardent has reasonable gearing of 33 per cent and sound cash flow characteristics: the group has generated cashflow of $400 million in the past five years.
Ardent announced a distribution per security of 7c in the first half, a rise of 2.9 per cent. The group is forecast to pay out 13c per security in 2015, an indicative yield of 6 per cent.
At $2.18, Ardent is trading above our valuation of $1.75, but this is more a yield-driven opportunity rather than a pure value play. A solid yield suggests that Ardent is a good opportunity for income investors looking to diversify outside the major dividend stocks.