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SEAS
- 1. SeaWorld Entertainment (SEAS) Blackfish Scared Investors, but Not Customers LONG, TP $28 (+40%) RESEARCH TEAM Parker Kim, Senior Director Vishal Bhat, Senior Analyst Nancy Liu, Junior Analyst Patches Chen, Junior Analyst Nathan Kim, Analyst Austin Partridge, Analyst
- 4. Investment Thesis The “Blackfish” Expose Has Scared off Investors… -40% TP $28 LTM Stock Price Chart for SEAS
- 5. Investment Thesis …but not Theme Park Customers BlackfishRelease -1% -13% +0.3% -5.2% -2.2% Park attendance has taken a hit, but nowhere close to the 40% drop that’s priced in SeaWorld Quarterly Attendance (000s) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014
- 6. Investment Thesis Airline Ticket Sales Show Customers Are Loving Cheap Oil Oilplummets +14% +8% +2% Cheap plane tickets mean everyone booking a vacation US Airline Ticket Sales ($mns)
- 8. Company Overview The King of the Sea Annual Revenue Spending per Person AdmissionsIn-Park Over 22.4 million guests visited SEAS parks last year, including 3.6 million international visitors
- 9. Company Overview Since its 2013 IPO and Blackfish, SEAS Has Been Improving SEAS IPO’d from Blackstone ownership in 2013 at $27 per share $250mn (13% of market cap) authorization to buyback SEAS shares while price is low Share Buyback Cost Restructuring Long Term Projects Brand Improvement $50mn cost cutting effort targeting 300 jobs with funds to be deployed into marketing and advertising to capture benefits of current low oil prices SEAS spends ~$110mn per year on advertising and marketing before this year’s cost-cutting funded increase $300mn is being spent on updates to the killer whale exhibits in the 3 Seaworld parks, designed to encourage previous visitors to come back
- 11. Industry Overview Snapshot of the Water Park and Theme Park Industry The United States has the largest theme park market in the world: Theme parks are an attractive investment sector: 5 of the 10 largest theme parks 11 of the 25 most visited theme parks $15.4bnin US theme park revenue stable cash flow allows safe leverage Strong consumer value proposition Relative to other service based out-of-home entertainment
- 12. Industry Overview Competitor Analysis Shows SEAS Success and Growth Six Flags 8.2% Universal 9.5% Disney 14.1% Other 39.5% Seaworld 28.7% Water Park Market Share Water Park Revenues by Company ($mns) SEAS DIS UNI SIX Theme Park Attendance (mns of visitors) SEAS DIS UNI SIX FUN
- 13. Industry Overview Analysis of Competitive Factors Shows Opportunity Indirect Competition Competition Basis Direct Competition Seaworld Strengths Competes with other forms of recreation and entertainment: movies, at-home-entertainment, sports, attractions, vacation travel 1 2 3 Location, ease of travel access Price: admissions and bundles Quality: rides, creativity, cleanliness a b c Brand recognition Zoological collection as differentiator Strong variety in rides and attractions
- 15. Financial Overview Relative Valuation Constrained by Small Peer Universe The relative valuation is constrained by the small number of publicly-traded theme parks, and the lack of publicly- traded water parks. Company Ticker EBITDA margins EBITDA/Attendee Attendance (mns) EV/EBITDA P/E Six Flags SIX 29% $13.3 24.9 16.9x 63.9x Cedar Park FUN 29% $14.2 22.9 13.9x 31.2x Merlin Entertainment MERL 33% $6.9 45.8 12.4x 24.1x Seaworld SEAS 25% $15.0 23.2 10.0x 34.7x Median 29% $13.3 24.9 13.9x 31.2x Average 30% $11.5 31.2 14.4x 39.7x Outperform/Underperform UNDERPERFORM OUTPERFORM UNDERPERFORM OUTPERFORM MIXED Target Price (Median) $36.99 $17.44 Target Price (Average) $38.80 $22.22
- 16. Financial Overview Historical Valuation Gives a More Accurate Multiple Blackfish Pre-Blackfish Average: 10.4x Current: 8.8x Historical EV/EBITDA Multiple (2013-2015) Historical P/E Multiple (2013-2015) Blackfish Pre-Blackfish Median: 48.4x Current: 31.1x Average Median Resulting Target Price: Resulting Target Price: $23.41 (+17%) $27.09 (+36%)
- 17. Financial Overview Summary of Valuation Methods and Target Price Summary of Valuation Results Current Price: $20 +94% +85% +35% +17% +11% -13% Average TP $28 (+40%)
- 18. Considerations
- 19. Considerations Competitors are a Primary Risk Factor for SEAS $147 $147 $105 $85 The $100 psychological barrier of many Orlando theme parks should reduce their ability to compete with Seaworld, the only remaining sub-$100 theme park
- 20. Considerations High Leverage is Not a Concern Due to Strong Cash Flow Capital Structure Equity 580mn Debt 1.56bn Operating Cash Flow $260mn Interest $29mn CFO vs. Interest Comparable Balance Sheet Health D/E Interest Coverage Seaworld has relatively low debt compared to other theme parks and has industry-leading ability to meet its interest payments
- 21. Investment Thesis The “Blackfish” Expose Has Scared off Investors… -40% TP $28 LTM Stock Price Chart for SEAS
- 22. Investment Thesis …but not Theme Park Customers BlackfishRelease -1% -13% +0.3% -5.2% -2.2% Park attendance has taken a hit, but nowhere close to the 40% drop that’s priced in SeaWorld Quarterly Attendance (000s) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014
- 23. Investment Thesis Airline Ticket Sales Show Customers Are Loving Cheap Oil Oilplummets +14% +8% +2% Cheap plane tickets mean everyone booking a vacation US Airline Ticket Sales ($mns)
- 24. SeaWorld Entertainment (SEAS) Blackfish Scared Investors, but Not Customers LONG, TP $28 (+40%) RESEARCH TEAM Parker Kim, Senior Director Vishal Bhat, Senior Analyst Nancy Liu, Junior Analyst Patches Chen, Junior Analyst Nathan Kim, Analyst Austin Partridge, Analyst
- 25. DO NOT WRITE OVER, TEMPLATE SLIDE DON’T EVEN THINK ABOUT IT MISTER