Australia | Jun 07 2022
This story features EVT LIMITED. For more info SHARE ANALYSIS: EVT
Research by Jarden suggests an improving hotels and cinema outlook will overcome discretionary spending concerns for Event Hospitality and Entertainment.
-Jarden sees an improved outlook for Event Hospitality and Entertainment
-Earnings margins to improve for the hotels segment
-First half results indicated solid cinema demand
-Promising discretionary spending trends in the US
By Mark Woodruff
Event Hospitality and Entertainment ((EVT)) provides heightened exposure to the reopening theme as all business segments have been impacted by covid lockdowns and restrictions.
The company operates hotels, cinemas, plus one ski resort across Australia, New Zealand and Germany.
The Entertainment division includes cinemas spread across the three countries, while Hospitality incorporates hotels and resorts, though the Leisure division also houses the Australian ski resort Thredbo. Property is rapidly becoming immaterial following the recent sale of most of the investment portfolio.
In FY19, the company's offshore businesses generated around 30% of total group revenue, yet only 10% of group earnings (EBITDA).
Post-2019, the global pandemic has left its scars, but Jarden anticipates a full recovery to FY19 earnings by FY24, driven by an improved hotel demand and supply outlook, and a shift in consumer demand towards premium cinema experiences, such as Gold Class and more upmarket food and beverage options.
The Hotel recovery is dependent on international and corporate travel, and the analysts forecast international flight capacity will return to FY19 level by FY24.
The broker also forecasts an earnings (EBITDA) margin improvement for the Hotels business to around 33% in FY24 from 28% in FY19, as the company shifts towards a larger portfolio of managed hotels. This comes as demand sentiment towards luxury, CBD and regional hotels improves, following a reduction in overall accommodation supply, which could provide further scope to reprice room rates and return revenue to FY19 levels sooner than FY24.
Management’s goal to divest -$250m of non-core property assets remains on-track, observes Citi, with -$194m of properties sold to-date, and proceeds exceeding the company’s most recent valuations by 35%.
Although inflationary and cost of living pressures are a concern for consumer discretionary stocks, data from the US suggest to Jarden consumers are willing to spend on travel and leisure, given pent-up demand. The broker, not one of the seven updated daily in the FNArena database, has initiated coverage with an Overweight rating and $17.90 target price.
Inside the database of seven, Buy-rated Citi and Ord Minnett last updated forecasts for Event Hospitality and Entertainment in late February, following the release of what looked like "promising" first half results. The average 12-month target price of $18.54 set by the two brokers suggests circa 27% upside to the current share price.
In the first half, group revenue recovered to 56% of the pre-pandemic (FY19) level, an improvement from 35% in the previous corresponding period.
First half results
Back in February, Citi highlighted $75m in cost savings throughout the first half and suggested an ongoing focus upon costs should benefit earnings margins, and support earnings in the short-to medium term.
The outlook for Cinemas and Hotels was also considered positive, given pent-up demand from a reduction in covid impacts. A&NZ Cinema losses were lower than expected due to blockbuster releases late in the half, and the segment is expected to benefit from a further strong film slate in the second half. Meanwhile, the return of international tourists should buoy Hotels a bit later (in FY23), given the longer booking lead time.
Ord Minnett suggested demand for the Cinema experience is likely to remain solid based upon evidence from the first half. Admissions increased by 75%, while average admission prices and average spend per head increased by 15% and 50%, respectively, compared to levels in the first half of FY19.
While the broker noted an improvement in the Hotels division over the half, occupancy levels were very low and earnings for the next year were expected to be impacted by refurbishments and closures.
Promising overseas trends
Less than four months later, Jarden confronts investor concerns around discretionary stocks in general, due to potentially lower customer spend in response to rising interest rates and inflation, as well as cost of living pressures.
Indeed, the analysts have already factored into forecasts a lower spend-per-head for cinemas and lower occupancy and room rate levels for hotels than in FY19. Nonetheless, while reduced discretionary spending presents a risk to the broker’s already conservative forecasts, evidence from the US demonstrates customers are willing to spend on discretionary items such as hotels and cinemas.
Recent data from Las Vegas hotels show April 2022 visitor volumes were strong and revenue per visitor was above 2019 levels, while Jarden also points to American movie theatre chain AMC Entertainment. First quarter results indicated guests were spending like never before, with revenue-per-patron 34% in advance of pre-pandemic norms.
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