Description

Ardent was a A$670mm (US$450mm) integrated leisure company that recently divested its US family restaurant & entertainment business known as Main Event for ~A$610mm (net after repaying all debt outstanding at Main Event and at Ardent). Ardent distributed the bulk of the net proceeds (95c per share) to shareholders. Post distribution the company has net cash of ~A$180-200mm which at the current market cap of ~A$260mm implies that one is paying A$60-80mm for the company's core theme park business. Based on where comparable assets have traded Ardent could easily have 50-100% upside. The company has been evaluating strategic alternatives for Main Event since late 2021 and as a result, the shareholder base had transitioned to deal-focused investors who likely have little interest in the remaining theme park business.

Ardent's theme parks business comprises its Australian-based Dreamworld and WhiteWater World theme parks and the SkyPoint attractions, which are all located in the Gold Coast, Queensland. The theme parks and attractions are currently operating at a small loss as attendance has only recently started to recover from COVID-related travel restrictions in place in Australia. Historically, the parks have earned A$30-35mm of EBITDA.

The company’s troubles began before COVID. The business suffered from disruptions and negative publicity from an accident at Dreamworld in 2016 where 4 people were tragically killed. While I won’t get into details, the impact on the business was severe as the incident received significant media coverage and the ultimate findings of a coroner’s examination were not released until 3 years later. During this period attendance started to slowly recover and the company spent A$100mm+ of capex to renovate and improve the park. Just as the business was starting to see the benefits of these investments and attendance was recovering, COVID hit, and Australia suffered among the strictest lockdowns. While the parks were only closed for 6 months, interstate and international travel were very limited and attendance figures declined significantly from their pre-COVID (and pre-accident) levels.

Recent live traffic data seems promising. Traffic data from Google, state tourism data, and industry statistics suggest that tourism and theme park traffic in Gold Coast in the last 6 months is now just ~5% below pre covid levels - a marked improvement from the 30-45% below COVID level they experienced last year. At the current level of attendance, the company should be operating at a small profit. Most importantly, however, the taint from the 2016 accident appears to be finally receding. A comparison of traffic market share to Dreamworld relative to other attractions in the area indicates a consistent outperformance in traffic improvement. Based on recent trends it is likely that traffic market share is on track to recover to 2016 levels in the next 12-24 months.

The main comp to the Australian theme park asset was bought by a local private equity firm in late 2020 for ~8x pre COVID EBITDA (~9x pro forma for interim cash burn). The Australian recently reported that a "global PE fund" is looking at Ardent Leisure's theme park assets. Based on historical levels of EBITDA (which is likely overly conservative as it doesn’t give credit to the recent capital investments) the company’s theme park business should be worth A$250mm to A$300mm. Combined with the net cash balance this yields a total value of A$0.90 – A$1.10 per share. This valuation gives no credit to the excess land the company owns (approximately 50 acres). The company has indicated that they plan on reinvesting some of the cash it retains to unlock the value of the excess land. While I don’t have a strong view as to the management’s ability to create value with the land, I’ve been impressed by recent actions taken by the Chairman (Gary Weiss) and by his long-term track record of value creation.

Catalyst

Traffic recovery at theme parks

Potential monetization of business