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Monday, 3 April 2017


Rapids incident

2016 was a year of tragedy at Dreamworld, with a fatal accident on the Thunder River Rapids Ride resulting in four deaths in October. 

The ride in question was shut down and the park closed to the public for more than a month while the incident was investigated and safety procedures were reviewed. 

The park reopened in December, though not all of the park's rides were operating at that time. 

A few weeks ago hearts were in mouths again when the media breathlessly reported that "six" (or indeed "eight") passengers were stuck upside down on the BuzzSaw ride.

Thankfully this incident was ultimately reported as having been triggered by an auto-stop sensor and the ride was reset, though the live news reporting wouldn't have done much good for business confidence. 

Ardent Leisure

The operator of Dreamworld Ardent Leisure Group (ASX: AAD) experienced a similarly up and down year.

Ardent has also operated WhiteWater World, SkyPoint climb, AMF and Kingpin bowling centres, and Goodlife fitness centres across Australia and New Zealand, as well as operating the Main Event family entertainment centres in the US.

Last month Ardent provided a February trading update, which showed that unaudited Dreamworld revenues had been hit hard, with revenues for the Theme Parks division down 35 per cent from the prior corresponding period to $4.4 million in February 2017. 

Park visitation was also down by 33.6 per cent year-on-year, but attendances seemed to be recording steady improvements from month to month, which piqued my interest as an adopted Queenslander. 

Source: ASX: AAD

The 3-year share price chart shows how the share price quickly fell from its 52-week high of $2.97 after the initial incident to around $2. 

After another sharp drop in February when the half year results reported a statutory loss, the share price has recently settled at $1.83 (bouncing moderately from a 52-week low of $1.52). 


Ardent has a market capitalisation of $858 million and is now trading at a high PE ratio, with the half year revenue and earnings materially and adversely impacted by the Dreamworld tragedy.

The group reported that it had sold off Health Clubs for a solid $45 million profit, strengthening the balance sheet to fund the roll out its 200-store Main Event opportunity in the United States. 

The HY17 results reported revenues of $317.2 million and "core earnings" of $12.8 million, the 45 days closure of Dreamworld/WhiteWater World having adversely impacting turnover. 

The HY17 statutory figures reported a loss of $49.4 million, driven largely by a massive $90.6 million writedown of goodwill, property, plant, and equipment relating to Dreamworld assets, as well as $3.8 million of Dreamworld "incident costs" (partly offset by the $45.0 million profit on the sale of Health Clubs net of selling costs).

Source: ASX: AAD

The distribution was cut to 2 cents per share, but the group expects the value of Dreamworld's assets to improve as park attendance recovers.

Attendance to recover?

The "Big Nine" thrill rides at Dreamworld were reopened in January.

Dreamworld had offered refunds to pass holders, but there was only about a 10 per cent take-up, which is seen to be a positive signal. 

I went down for a look yesterday (all for the purposes of thorough blog research, you understand), and although the park was not operating at full capacity, there seemed to be few issues with parks attendance. 

Some of the stalls weren't open, and as far as I could tell the BuzzSaw may not have been running yesterday (didn't fancy it at 10am on a Sunday morning anyway), but overall the vibe and that intangible thing 'consumer confidence' was upbeat.

From the severe damage to my hip pocket I can confirm that are a number of new experiences at the park expertly designed to lighten one's wallet, including a LEGO retail store, several new food outlets, and a virtual reality Mick Doohan motorcycle experience (didn't fancy that one on a Sunday either, actually). 

And park attendances were overwhelmingly solid, as would normally be expected at the beginning of school holidays. 

Favourable demographics for SEQ

As I noted here, population growth is accelerating again across south-east Queensland, with stronger population growth recorded in Greater Brisbane (41,100), Gold Coast (12,300) and Sunshine Coast (6,000) in FY2016.

Chinese tourism numbers are also shattering records by the month, with Gold Coast apparently now one of the most favoured destinations of Chinese tourists globally. I reckon Kangaroo Point cliffs must be number one, whatever the surveys may say.

The SEQ region will also benefit greatly from its hosting of the Commonwealth Games XXI in 2018.

Dreamworld and the Theme Parks division is only one part of Ardent's operations, with the Main Event roll-out opportunity remaining "on track", and "average fist year EBITDA returns exceeding 30 per cent". 

Source: ASX: AAD

Meanwhile, time and the favourable demographic trends noted above should also heal park attendance figures. 

The wrap

Excluding the impact of the Dreamworld incident, the group reported a 'normalised' statutory profit of $45.8 million for the half year, up from $22.7 million for the prior corresponding period - which just goes to show what optimistic bean-counters can do with a horrible set of numbers, I guess.

Strip back out the profit on the sale of Health Clubs and no fewer than sixteen other items and you'll eventually reconcile your way back to a core earnings figure that was 58 per cent lower year-on-year at $12.8 million. 

As you can see, therefore, whether you rate Ardent as a "buy" will largely depend upon your assessment of the Main Event roll-out opportunity. 

The market overall seems to be cautiously optimistic, pricing the group with a market cap of $858 million.

In the meantime, I'll keep you posted with news on park attendance figures. Quite fancy a visit to WhiteWater World this week...