Corporate Action: Vote in favor of Ardent Leisure’s Proposed Sale of Main Event and Capital Return

Business Strategy & Outlook:

Ardent Leisure’s fundamentals is moderated by the wider macroeconomic factors that influence its operations and the current restructuring efforts to restore earnings after the recent upheavals. Of greater concern is the near-term impact of the coronavirus on Ardent’s operations and its financial position, especially theme parks. But cost-cutting and government assistance measures have provided relief. RedBird’s USD 80 million investment in June 2020 for an initial 24.2% preferred equity interest in Main Event secures the U.S. family entertainment chain’s funding position. Furthermore, RedBird has the option to acquire an additional 26.8% interest at a future date, with the valuation to be based upon 9.0 times EBITDA at the time of exercising the option, subject to a minimum equity floor price. However, the Australian theme parks remain challenged. While the facilities have emerged from their forced shutdown in March 2020, the lingering impact of the pandemic is likely to constrain free cash flow.

Beyond the current coronavirus crisis, Ardent Leisure possesses solid leisure and entertainment assets that all operate in intensely competitive markets. These assets compete for the leisure dollars of consumers who are spoilt with alternatives, especially in this online digital world, where most traditional entertainment activities can now be enjoyed in a virtual setting. Furthermore, most of the group’s businesses are relatively capital-intensive, particularly as Main Event expands its venue footprint and as Ardent strives to keep up with competing leisure options and stay fresh in consumers’ minds. The situation is exacerbated by cyclical factors, with consumer discretionary spending highly leveraged to swings in general economic conditions. The agreed sale of Main Event, announced in April 2022, was struck at a good price and the proceeds will lead to a healthy distribution to shareholders. However, it will leave the group with just the loss-making theme parks unit.

Financial Strengths:

Ardent has AUD 119 million of net debt on the balance sheet, as at the end of December 2021. This comfortable position with AUD 93 million in available liquidity for Main Event is mainly thanks to Redbird’s USD 80 million (AUD 100 million) capital injection into the U.S. business, in return for a 24.2% preferred equity stake. The Queensland government’s recent tourism-friendly three-year AUD 64 million loan package (plus AUD 3 million grant) also means the Australian theme parks unit now has AUD 18 million of available liquidity.

Bulls Say:

Main Event Entertainment adds growth appeal to Ardent Leisure, as it accelerates expansion into the United States family leisure market.
All of Ardent Leisure’s operating businesses enjoy solid market positioning.
Ardent Leisure’s balance sheet is solid and bolstered by a string of recent asset divestments and refinancing.

Company Description:

Ardent Leisure is an owner and operator of leisure assets. Its theme park operations are situated in Australia, including Dreamworld and WhiteWater World on the Gold Coast. The group also runs Main Event, a growing portfolio of family entertainment operations in the United States, offering bowling, arcade and various other leisure activities. The agreed sale of Main Event, announced in April 2022, was struck at a good price and the proceeds will lead to a healthy distribution to shareholders. However, it will leave the group with just the loss-making theme parks unit.

(Source: Morningstar)

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