While many companies claim the weather is to blame for lacklustre sales results – retailers are particularly prone to the excuse – Amalgamated Holdings Limited (ASX: AHD) at least has a point when it notes that a lack of snow makes its ski fields less attractive to customers!
Amalgamated owns a quality portfolio of entertainment, leisure and hospitality businesses which have helped the firm grow profits from around $50 million a decade ago to a normalised profit of $75 million (which was down 9% on the prior year) for the 12 months ending June 2014.
Here's how the divisions performed
The poor ski season at Thredbo was singled out as the primary cause of the decline in profits with earnings from Thredbo dropping from $11.8 million in FY 2013 to $6.5 million in FY 2014.
Adding to the difficulties for the group was a weak line up of films which failed to draw the crowds to Amalgamated's cinema chains (although this was offset by higher advertising revenues). The World Cup Soccer tournament also distracted film goers from its German cinema operations.
The Hotels division – which includes the Rydges brand – was the highlight with occupancy growing 5%, room rates up 4.6% on average and earnings increasing from $20.5 million to $32.8 million.
The Flip Side
Obviously some investors are enamoured with Amalgamated with the stock trading on a hefty multiple despite FY 2014 earnings per share being the lowest in five years. While the group owns some unique assets which are appealing and valuable there is also good reason to not get carried away and pay up for this stock. Here are three reasons to be wary.
- Amalgamated is the leading cinema group in Australia and New Zealand and the eleventh-largest cinema group globally. So far viewers continue to be drawn to the cinematic experience despite the lure of cheap home theatre set-ups and online piracy. While cinemas may continue to prove popular the competitive threat of alternatives has the very real potential to crimp incremental sales growth.
- The group's position in Hotels is performing well as Amalgamated expands the properties under management; the hotel business is however a very competitive sector to operate in.
- Thredbo is an appealing asset and offers long-term growth given its proximity to Sydney, however it is far from a monopoly asset. Cheap airfares to more appealing skiing destinations such as New Zealand and Japan, which not only offer a destination experience, but also often cheaper ski holiday costs and more consistent snow are a competitive threat.
