Investors looking to tap into the recovery in consumer spending – retail trade figures have moved to a 12-year high – usually look first to the retail stocks. But that’s not the only way to pick up on a more positive outlook from Australian households.
One of the categories leading the charge in consumer spending is leisure spending. According to Commonwealth Bank Research, its Business Sales Indicator (BSI), a measure of economy-wide spending, grew for the 38th straight month in September. But the sector with the strongest annual growth in September was amusement and entertainment.
A small group of stocks in Australia pick up on leisure spending. Here we talk about four of them.
Ardent Leisure (AAD)
The largest leisure business on the Australian stock market, Ardent Leisure Group (AAD) gives exposure to both leisure and tourism: it owns a diverse portfolio of leisure assets across Australia, New Zealand and the USA, spread across theme parks, tenpin bowling centres, fitness and health clubs, marinas and family entertainment centres.
Capitalised at just under $1.5 billion, Ardent operates the Dreamworld and WhiteWater World theme parks in Queensland; the SkyPoint Climb observation deck (on levels 77–78 of the Q1 Tower in Surfers Paradise); 50 tenpin bowling centres (under the AMF and Kingpin brands); 65 health clubs/fitness centres under the Goodlife Health Clubs brand; seven marinas in New South Wales (under the d’Albora Marinas) brand, which can accommodate more than 1,400 vessels; and the Main Event family entertainment centres in the USA.
Ardent has been a stand-out performer on the stock market in recent years, showing a five-year total return (capital growth plus dividends) of 28.7% a year, rising to 59% a year over three years, and a stellar 80% over the last 12 months. In the last 12 months, the stock has moved from just under $2 to $3.39, where it is trading at a consensus forecast FY15 yield of 4.4% (but only 8% franked), and a fairly steep prospective price/earnings (P/E) ratio of 24 times earnings. Not surprisingly, Ardent has pushed into over-valued territory, with the analysts’ consensus price target on the stock sitting below the current share price at $3.20.
Village Roadshow (VRL)
The $1.1 billion market-value Village Roadshow (VRL) is the second-largest leisure stock, with its businesses in theme parks, cinemas and film production and distribution. Village owns the Warner Bros., Movie World and Sea World theme parks on the Gold Coast, and the new Wet’n’Wild Sydney. Also on the Gold Coast are Village’s Paradise Country Australian farm tour and the outdoor Australian Outback Spectacular stockman-themed equine show.
VRL also owns cinema businesses in Australia, Singapore and the US and a movie production firm in Los Angeles.
For the year ended 30 June 2014, Village lifted revenue by 3%, to $965.8 million, while its net profit of $56.5 million was marginally down on the $57.2 million in FY13. The biggest profit contributor, cinema exhibition, lifted its operating profit contribution by 8.4%, and the theme parks business boosted its output by 7.8%, but the film production/distribution business saw an 8% downturn.
Village Roadshow is expanding its theme park business into China, where it expects to open its first water park in 2015/16, and is also looking at opportunities in Korea and Malaysia. The company says its Asian theme park expansion is “potentially transformational.”
At $6.98 a share, Village trades on a prospective fully franked dividend yield of 4.7% for FY15, and a P/E ratio of 17.5 times earnings. And analysts also think Village is significantly under-valued: the consensus price target on FN Arena is $8.15, putting it on a notional discount of 16.8%.
Amalgamated Holdings (AHD)
Village’s cinema rival Amalgamated Holdings (AHD) is diversified across the entertainment, hospitality and leisure industries. It operates the Greater Union, Birch Carroll & Coyle and Event Cinema brands in Australia, Event Cinemas in New Zealand and Fiji, Rialto Cinemas in New Zealand and Cinestar Cinemas in Germany. Amalgamated also has businesses in post-production and technical film processing.
Away from the movie business, the leisure operations include the Rydges Hotels and Resorts chain, the QT Hotels and Resorts chain, the Atura Hotels and Art Series Hotels, and the Thredbo ski resort in New South Wales. There is also a growing property arm.
For the year ended 30 June 2014, Amalgamated lifted revenue by 5.6%, to $1.1 billion, while net profit was down by 8.4%, to $78.6 million. The result was hit by a 43% slump in cinema earnings in Germany, and a 45% fall in the contribution from Thredbo ski resort, which had a poor 2013 season (it substantially redressed that with an excellent season in 2014, which will show up in the FY15 result.)
Amalgamated has performed reasonably well on the stock market, with a five-year total return of 18.6% a year, a three-year number of 27.3% a year, and 21.1% over the last 12 months. But low liquidity hampers the stock.
On FY15 forecast numbers, Amalgamated is priced, at $9.70 a share, on a fully franked prospective yield of 4.8%, and a prospective P/E of 16.6 times earnings. On top of that, analysts see room to move on the share price: the consensus price target, at $11.20, implies achievable capital gain of 13.4% if borne out.
Super Retail Group (SUL)
Another stock that picks up on leisure spending is retailer Super Retail Group (SUL), which has a portfolio of eight retail brands, in three divisions, namely Auto, Leisure and Sports.
Source: Super Retail Group
The Auto brands are Supercheap Auto and AutoTrade Direct; in Sports, the brands are Rebel Sport and Amart Sports. But it is the Leisure portfolio that interests us: here, Super Retail operates the Boating Camping Fishing (BCF) chain, which offers a full range of products related to those activities; the Ray’s Outdoors chain of outdoor entertainment and camping equipment stores; the Workout World fitness equipment chain; and Fishing Camping Outdoors (FCO), the group’s New Zealand outdoor and leisure retail brand.
For the year ended 30 June 2014, Super Retail lifted sales by 4.6% to $2.1 billion, but the like-for-like sales growth (stripping out new store openings) was less than 2%. Net profit was up 5.6%, to $108.4 million.
Super Retail has been hit by the mining downturn, because it has been making a lot of its sales to cashed-up miners: the company identified falling demand from stores in areas hit by the downturn in mining activity as a major detractor from leisure sales in FY14.
But it now looks to be attractive value. On analysts’ consensus forecasts, the stock, at $7.39 – down from $13.48 a year ago – is trading on a forecast P/E of 10.1 times earnings, and a fully franked dividend yield of 6.6%. On the FN Arena analysts’ consensus price target of $9.42, Super Retail is under-valued to the tune of 27.5%.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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