Village Roadshow's water park sell-off hailed as positive
Village Roadshow's move to sell its Wet n Wild water park in western Sydney to a Spanish leisure park operator is a good move as it will help the company pay off debt, Morningstar says.
Wet 'n' Wild has been on the slide since its opening in December 2013
Village Roadshow's move to sell its Wet 'n' Wild water park in western Sydney to a Spanish leisure park operator is a good move as it will help the company pay off debt, Morningstar says.
Senior equity analyst Brian Han welcomed the announcement that Village Roadshow (ASX: VRL) would sell the asset to Madrid-based Parques Reunidos for an-up front purchase price of $40 million.
The company has not given a reason for the sale, which will cause it a pre-tax loss of about $25 million in 2017-18, but Village says proceeds will be used to cut debt. Han said Wet 'n' Wild had been performing poorly since its opening in December 2013.
"This is a low price for the asset, not surprising given the earnings history," Han said. "Nevertheless, we think this is a good move as it reduces Village Roadshow's debt, and that was something the company had to do.
"Wet 'n' Wild Sydney has been a sub-par investment to say the least, with EBIT having fallen from $6 million in fiscal 2014 to a loss of over $4 million in fiscal 2017."
Village Roadshow remains undervalued, according to Morningstar, whose long-term estimates for the four-star rated company remain unchanged. It is trading at $2.30, a 23 per cent discount to a fair value rating of $3.00.
Australian theme parks have suffered lower patronage since a fatal accident claimed four lives at Village Roadshow rival Ardent Leisure's Dreamworld theme park on the Gold Coast in October, 2016.
Ardent on Sunday overhauled its Dreamworld's management team, with chief executive Craig Davidson, who was in charge at the time of the Thunder River Rapids ride disaster, announcing he will leave the company next month.
Mr Davidson's role will be filled by Ardent chief experience officer Nicole Noye until a permanent replacement is found.
Parques Reunidos's acquisition of Wet 'n' Wild Sydney is the group's first foray into Australia, adding to a stable of 60 theme parks, water parks, zoos and indoor entertainment centres across Europe, the US, Argentina, Dubai and Vietnam.
Village Roadshow - which owns theme parks including Warner Bros. Movie World and Sea World on the Gold Coast - has issued two profit warnings this year.
In addition to the $40 million sale price, Village Roadshow will receive payment that will depend on the park's revenue performance up to June 30, 2020.
Wet 'n' Wild Sydney's earnings dropped 66 per cent to $3.1 million in the year to June 30, 2017, from $9 million the preceding year due to a fall in season pass sales and attendance levels.
The company blamed already weak visitor numbers for its profit warnings, compounded by a wet March and competition from the Gold Coast Commonwealth Games.
Village Roadshow expects its annual result to be somewhere between break-even and a $10 million loss.
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Lex Hall is a Morningstar content editor, based in Sydney.
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