Cargo Shorts said:
I would like to know more about the situation China. How large is their exposure if it all goes upside down?
The Chinese deals are licensing deals, SF spends no Capex. They have been troublesome as parks in Vietnam & Dubai have been cancelled b/c of developers issues. In the deals SF gets paid 5-10M/yr pre opening/development and estimated 10-20M/yr post opening. The non payment of the fees is an immediate small hit in Q4. The problem is that analysts & SF future projections of earnings included these deals. The Chinese developer deal was for 10 parks to open by the end of 2021. 2 parks were supposed to open in 2020.
SF had set an aspirational goal of 750M EBIDTA, that's impossible with the troubles. The foreign license deals are in theory easy money with no Capex for SF. The possible lost of the deals just compounds their already domestic problems of lack of organic growth, which has been causing the stock to get hit after earnings report the last year or so. They got hit over 10% after Q3 results which were lackluster..ie...440K attendance increase in Q3, but just 1M more in revenue. The stock has gone from $72(June2018) to $45 (last week) based on lack of organic domestic growth, the bad news last week dropped the stock to $36.
The real troubling news was the domestic more than China.. They expanded their Holiday events but had lower attendance & pass/membership sales were reported as softer than projected for the holiday season. SF's new strategy from Aug 2018 was to push people into higher cost memberships. SF had essentially maxed out on the number of cheap passes, the people that would buy had so essentially. To grow revenue they needed to get more from each patron.....get them into higher priced memberships. SF has always lagged CF, SEAS,etc...on admission per caps, total per caps, in park per caps. The lower sales in Q4 could possibly mean SF has converted all the easy people from passes to memberships & are getting push back on the higher price memberships from new customers they are trying to get. SF with the soft sales has continued their holiday pricing. Meanwhile, CF followed thru on scheduled price increases on Jan 6th, meaning they must be pretty satisfied with sales. Platinums are $220 now, last year Platinums stayed at $210 till right before the parks opened for the season. All CF parks are at price points that they didn't go to til the usual first week in April price increase countdown they do. CF surely has another slight increase in them before opening day of $5 to $7
Kevinj said:
This pattern started just a few years after being managed into a financial grave punctuated by...guess what? 1) overbuilding and 2) acquisition.
1)The foreign parks require no Capex from SF, they are licensing deals for the use of SF brand. So, they aren't overbuilding b/c all the money & building expenses are on the foreign developers. Domestically, SF Capex is based on a formula of max 9% of North American revenue, so they aren't overspending. Their problem is lack of organic revenue growth
2)The parks that SF has added under their name since 2018 are operating leases, they don't own the parks, EPR does. So, acquisition isn't the problem, they haven't been buying anything
Kevinj said:
This latest news would make it seem that the attempt to purchase Cedar Fair was more or less a hail-mary, but the obvious writing on the wall was (thankfully) enough to motivate CF to say "thanks but no thanks".
What a mess.
Yes, the sudden offer seems SF knew all the issues they had been having on lack of growth were coming to a head. That offer came just after Q3 closed. SF knew the numbers were bad again, They would not report till 3 weeks later, so the news of a merger could give cover for a little time.
Also, you have to figure SF new the Chinese developer was having financial issues. They kept delaying the opening dates of parks to later in 2020 & pushed some back to 2021. The excuse was often regulatory according to SF in several conf calls. The construction was however slow b/c by translated Chinese articles the developer had not been paying contractors in full or some at all for about 6 to 9 months,
The offer for Cedar Fair was hardly serious, Low ball price & it was about 300M cash & the rest stock. Everybody knew SF stock had been going down since June 2018 high of $72, they were about $50 at the time of the offer, Taking stock offer on company on a down trend would have been risky even if it amounted to $85 to $90 share. SF reported Q3 3 weeks later, which was bad and they dropped to $40 share within a week. They recovered some to $45 and then dropped to $36 after last weeks news.
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