The Ardent Leisure Group Limited (ASX: ALG) share price fell more than 8% on Friday making it the worst performer on the ASX 200 (INDEXASX: XJO). Weakening tourism numbers are likely the key concern.
Ardent Leisure own and operate a number of premium leisure assets on the Gold Coast including the Dreamworld and White Water World theme parks and Sky Point Tower which offers incredible views over the Gold Coast and surrounds from the observation deck. They also own Main Event, a growing portfolio of family entertainment assets in the United States.
Where Are The Tourists?
Ardent Leisure provides family-focused entertainment to more than three million customers annually but the growth in visitation to its attractions has stalled amidst a significant slowdown in the Queensland tourism market. With all of its key Australian assets located on the Gold Coast, Ardent is feeling the pressure and investors have been unforgiving with the share price falling more than 25% in less than two months.
A number of factors have been blamed for the slowdown in tourism dollars spent in the region, including unseasonably bad weather and the slowdown in the Queensland and Australian economies more generally. Perhaps the most damaging factor has been the lingering effects of a tragic accident that occurred at Dreamworld in October 2016 when 4 people died whilst on the theme parks popular Thunder River Rapids ride.
Can U.S Operations Save The Day?
With its Queensland operations in somewhat of a rut, Ardent Leisure will be hoping its Main Event business in the U.S can pick up the slack. It is important to note that the Main Event business contributed more than 80% of company revenue last financial year which provides some perspective to the current struggles of the Australian operations.
Main Event revenue increased by 14% in the first half, boosted by the opening of three new centres. However, stripping out the results from the new centres and revenue growth falls to a miserly 0.7%. Total revenue is likely to keep rising with the opening of additional centres but investors need to keep an eye on the ‘like-for-like’ revenue growth of the centres which more accurately reflects the sustainable growth of the business.
Are Ardent Shares Trading At Bargain Prices?
I believe the detrimental weather and Queensland tourism numbers are to varying degrees both temporary issues. It’s these sort of temporary issues that often present great buying opportunities because investors treat them as permanent even if they are temporary.
However, I have concerns that the Main Event business won’t meet the growth expectations of management and I think many investors continue to underestimate the lingering effects of the 2016 Dreamworld tragedy on Ardent’s Australian business operations.
Therefore, despite the share price having fallen more than 30% since the start of March I still think there is significant downside risk to the share price.
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Disclosure: At the time of publishing, Luke has no financial interest in any company mentioned.
