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Ardent Leisure Group is going strong

Entertainment and leisure company Ardent Leisure Group (ASX: AAD) reported core earnings of $33.5 million for the half year ended 31 December 2013, up 13.4% on the prior period. Revenue was also up 14.1% to $250.6 million driven by strong demand for indoor entertainment centres in the United States.

Ardent operates some of Australia’s best-known leisure facilities, including Dreamworld and Whitewater World theme parks on the Gold Coast, Mainevent Entertainment Centres, AMF Bowling and Goodlife Health Centres.

The  highlights from the result came from high earnings growth in the Main Event and Health Club divisions, where EBITDA grew by 32.3% and 19.3% respectively. Ardent Chairman Neil Balnaves said, “Both Main Event and Health Club divisions are enjoying strong operating fundamentals, with opportunities for ongoing portfolio expansion to drive future earnings growth. Both businesses are now well positioned to benefit from increased scale and operational efficiencies”.

The company will look at rolling out further Main Event indoor entertainment venues across the United States and Australia in the coming six months. The company is on track to meet a target of 19 sites by the end of FY 2015 and negotiations are advancing on a further four sites for FY 16.

Ardent Chief Executive Greg Shaw said he expects demand to continue rising for the Health Clubs and Main Event businesses going forward. Shaw said there has been positive momentum in the affordable leisure sector, helped by the lower Australian dollar, a highly completive domestic airfare market and a rise in the health club industry from a range of ages of people who like a variety of classes.

The company has limited direct competition in the United States and has targeted the United States as a huge growth market. The success of the U.S. business model is driven by the location of entertainment centres on major freeways near large population catchments.

The company has had a strong financial performance over the past four years, growing earnings from $19 million in 2010 to $36 million in 2013, with revenue also increasing every year. The company also pays a solid dividend with the shares currently yielding 4.8% and has manageable debt, currently geared at 31%.

Foolish takeaway

Improving consumer confidence and low interest rates in Australia will assist Ardent’s Australian operations as discretionary consumer spending improves. The falling Australian dollar will benefit the company when U.S. earnings are converted into Australian dollars. The lower Australian dollar should also help improve inbound tourism.

While  future growth prospects appear very bright for the company, Ardent shares currently trade on a lofty 23 times earnings and therefore are expensive. The share price has also had a strong run in the past 12 months surging from $1.41 to $2.13.  Investors should look to purchase shares on any pullback as the long-term prospects appear bright.

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Motley Fool contributor Bradley Murphy does not own shares in any of the companies mentioned.

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