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SixFlagsGreatAdv
07-21-2001, 08:48 PM
First Six Flags Arugment




By Rick Aristotle Munarriz (TMF Edible)
June 27, 2001


I'm going to go out on a limb here. I'll bank on my buddy Paul sharing my enthusiasm for roller coasters and the amusement parks that house them. Of course, if we were simply two punks gushing over thrill ride affinity, your time would probably be better spent strolling through the rec.roller-coaster newsgroup.

So let's dig into the meat of the matter. Regional amusement parks have been climbing the equity chain lift all year long. As of last week, the industry's two pure plays -- Six Flags (NYSE: PKS) and Cedar Fair (NYSE: FUN) -- were sporting double-digit stock gains so far this year. It's easy to see why. In these uncertain economic times, leisure, compromised and discounted, is a goldmine.

Unlike exotic destinations or overpriced Mickey Mouse parks, regional theme parks are local outlets begging for much-needed reality escapes. Everything from summer tax rebates to a respite in fuel prices is helping feed an industry that is showing welcome resilience already.*

It gets better. According to the International Association of Amusement Parks and Attractions, park attendance has grown from 253 million to 317 million patrons over the past 10 years. That's decent. But what really needs to be hammered home is that over the same decade, the industry has gone from $5.7 billion a year in revenues to $9.6 billion. Broken down, that means that per capita spending has shot up from $22.53 back in 1990 to $30.28 this past year.

So while the allure of a sector that is growing in popularity may ring obvious, the fact that the average consumer is spending even more at the parks is the real double-whammy bonus prize here. That is why Six Flags rocks.

Sure, Cedar Fair has acquired select properties and tried*its best to enhance the operations. But that's kids' play. Six Flags has gone in, pumped up the attractions, and exploited the Six Flags branding with delicious results. When the company added the Six Flags banner to Kentucky Kingdom, for example, park attendance shot up by 35% the very next season. The turnstiles continue to click even faster now. Last year, the four acquired parks that were rebranded resulted in a 43% uptick in attendance, a 66% spike in revenues, and a doubling of park level cash flow.

Having already gone over the lucrative growing power of each new parkgoer, it's easy to see why Six Flags has gone to such great lengths to expand quickly. Does it mean the company has taken on bucketfuls of debt? Yes. But the leverage is worth it. Over the past five years, gross profits have skyrocketed from $39.9 million to $535.3 million. Yes, Six Flags had more in gross profits alone last year than Cedar Fair produced in top-line revenue.

Is Six Flags profitable? No. Not in the literal sense. But that is mostly due to the amortization and depreciation costs that it has had to write off in its acquisitive pursuits. The company remains cash-flow positive and its operating income has actually shot up ten-fold since 1996.

With 39 different properties, Six Flags is everywhere. Dozens here. A few more in Europe and Mexico. That's not only important from a personal radius to entertainment perspective, but it also keeps Six Flags from riding its success on just one or two parks.

That's the problem with Cedar Fair right now. It's got the amazing Cedar Point. Point given. Literally. If you're into roller coasters, St. Peter is manning the ticket booth at Cedar Point. I made my second trip to this thrill oasis just last week and had a great time. Cedar Fair also*has the all-year Knott's Berry Farm in California. The rest of Cedar Fair's portfolio is knee-deep in mediocrity.*

But even the gems aren't exactly sparkling right now. Last year, Cedar Point could lay claim to having the world's biggest roller coaster as well as the park record for the most roller coasters. Not now. In an industry of perpetual one-upsmanship, Japan's Steel Dragon now looks down at Cedar Point's Millennium Force while Six Flags' Magic Mountain now holds the coaster count record.

Knott's is facing a bigger problem by operating in Disneyland's Anaheim shadow. While the regional parks are banking on a golden season, Disney (NYSE: DIS) is in retreat mode. From staffing cutbacks to watered-down attendance projections, Anaheim just won't be the destination it usually is this time of year. Even worse for Knott's is that the dry well of foreigners at Disneyland has the Mouse gunning for Knott's stronghold -- locals. At Disney's troubled new park, Disney's California Adventure, adult residents of Southern California will be allowed to pay child admission rates and bring their kids for free. Disney? Discounting in the peak summer season? Angling for the Knott's crowd?

Not good.*

That's why it's good not to have all your Easter eggs in one basket. And as for Six Flags' mascot? Bugs Bunny? When he gnaws on his carrot and shoots off one of his "What's Up, Doc?" lines, you'll already know the answer.

Six Flags. That's what's up. And that's all folks!

SixFlagsGreatAdv
07-21-2001, 08:49 PM
By Paul Larson (TMF Parlay)
June 27, 2001

I love theme parks, and I love investing in the companies that make them possible. Beyond providing a great time, they offer a durable safe haven in turbulent economic times. As an escape that is much cheaper than the jet-set destinations, theme parks are within the means of the general public. I also just plain like investing in solid companies that make me smile.

With financial results that do not share the ups and sometimes terrifying downs of some of its peers, Cedar Fair (NYSE: FUN) stands at the top of the pack. The company owns and operates the nation's largest seasonal park -- Cedar Point -- a park that has been voted "Best Amusement Park in the World" for three consecutive years*in Amusement Today's international survey. But more importantly, Cedar Point has been an extremely consistent generator of profits for its shareholders and should continue to be a steady and attractive investment for years to come.

Operating history and profitability
Cedar Fair can trace its operating roots all the way back to 1870 when the company's flagship Cedar Point was developed as a beachside weekend getaway on Lake Erie. The company's current form -- a publicly traded limited partnership -- has been in existence since 1987, and has been the picture of consistency since coming public 14 years ago.

Cedar Fair Results
Revenue EBITDA Net Income2000 $472.9 $155.1 $77.81999 $438.0 $151.8 $85.81998 $419.5 $144.7 $83.41997 $264.1 $97.8 $68.51996 $250.5 $100.2 $74.21995 $218.2 $89.8 $66.11994 $198.4 $83.0 $62.8($ in millions)If I had space to take the numbers back even further, the trends would remain the same. Namely, the company has grown steadily while consistently and reliably generating profits and cash flow. It has been doing this for years --*decades, actually.

Contrast this to our competing company in this duel -- Six Flags (NYSE: PKS). Six Flags saw its predecessor, Premiere Parks, come public in 1996 while merely owning a handful of parks. The company bought the Six Flags chain from what is now AOL Time Warner (NYSE: AOL) in 1998, and it has been operating in its current form for only about three years. Meanwhile, over these last three years, Six Flags has lost over $110 million.

The bottom line here is that Cedar Fair has more than proven that it is a consistent performer that can profitably grow. All Six Flags has done thus far is*show it can spend money while creating red ink.

Balance sheet
When looking at the balance sheets of both companies, there is also no contest as to which company is the most attractive. As the figures below show, Cedar Fair is clearly in the better position and much less leveraged than Six Flags.
Cedar Fair Six FlagsTotal LT Debt $300.0 $2,412.6Property Plant & Equipment $736.2 $2,293.5Tangible Shareholder Equity $268.3 $128.4Last Year's Revenue $472.9 $1007.0LT Debt/PP&E 40.7% 105.2%LT Debt/Tangible Equity 111.8% 1878.9%LT Debt/2000 Revenue 63.4% 239.6%($ in millions, balance sheet info as of 3/25/01
and 3/31/01 for FUN and PKS, respectively)I would pay particular attention to the last three ratios, which clearly show that Six Flags is leveraged to the hilt while Cedar Fair has a much more modest amount of debt. Basically, Six Flags is just over twice as large as Cedar Fair on a revenue basis, but Six Flags has eight times the amount of debt.

This is not a point to take lightly. When a company is as leveraged as Six Flags is, it*greatly reduces the company's margin of error. Moreover, it also decreases a company's financial flexibility. Clearly, Cedar Fair is in a much safer financial position and has more "buying power" to purchase additional parks or upgrade its existing facilities.

Valuation
Last but not least, let's talk about valuation. Cedar Fair last year generated $1.50 in earnings per share, putting the company trading at roughly 15 times 2000 earnings. On the other hand, Six Flags lost $0.96 per share last year, so the PE ratio is incalculable. Which stock is better -- the one with healthy earnings to back it up, or the one with no earnings?

Cedar Fair also has one of the more robust "dividends" on the market. While not technically dividends, the company has a current cash distribution rate for its limited partners of $1.56 per share per year, or about 6.9% of the current stock price. Six Flags doesn't pay its shareholders any type of dividend, probably because of its anemic balance sheet.

Natelox
07-22-2001, 04:27 PM
very well done. i agreee, cause Six flags has all there parks well filled wit rides (cept SFEG), unlike cedar fair, were only cedar point is filled. I'm glad to hear something really good bout six flags. i love tha company.

CoasterfanNE
07-23-2001, 10:37 AM
Cedar Fair is in a far more durable financial condition than SF. If for one reason or another the amusement park industry would take a dive in income for one or two years, CF would be able to ride it out with only minor cut backs. SF would have great difficulty keeping the cash flow going, espicially when notes begin to come due on the debt load they have built up.

Anaconda
07-23-2001, 12:28 PM
Cedar Fair is definitely more financially durable than Six Flags, mainly because of the debt Six Flags currently has, and next year they gotta start paying it off.

dshimel
07-23-2001, 04:16 PM
Six Flags has gone in, pumped up the attractions, and exploited the Six Flags branding with delicious results. When the company added the Six Flags banner to Kentucky Kingdom, for example, park attendance shot up by 35% the very next season. The turnstiles continue to click even faster now. Last year, the four acquired parks that were rebranded resulted in a 43% uptick in attendance, a 66% spike in revenues, and a doubling of park level cash flow.

This is why SF isn't going to sell any parks. SFKK, SFAW, and SFEG are worth far more with the SF name( and Batman and Buggs merchandise in the stores) than without.

I know that people love to get into "SF vs. CF" pissing contests and that these "lowly" parks are ammunition against SF. However, from a business standpoint, these parks are worth more to SF than to anyone else. That is why SF is buying, not selling parks. These lowly parks generate cash flow that SF needs to pay off the $2 billion they paid to WB.

DragonSamurai
07-23-2001, 06:25 PM
LOL its funny how some guys try to reply to such a concise and accurate post like this one, with just stating that "six flags is in debt"

All yah six flag haters gota realize one thing ...sixflags is not gona go bankrupt anny time soon...why?>?

CAuse they can sell if needed some parks to keep the good ones running.......

and pleeezz 9 billion in 1 year is enough to pay back what they owe

dshimel
07-23-2001, 06:56 PM
Originally posted by DragonSamurai
CAuse they can sell if needed some parks to keep the good ones running.......

and pleeezz 9 billion in 1 year is enough to pay back what they owe

Actually, for what they could get for a smaller park, they could only pay interest for about a year. Besides, the drop in operating income associated with selling a park would likely drop their credit rating, pushing up thier interest rates, and erasing any benifit. When people see you selling assets to pay your bills, they don't like lending you money.

And, 9 billion is gross for ALL amusememnt parks in the world.

Of that, Six Flags took in just over a billion dollars last year. Employees and other operating expenses cost them almost 2/3rds of that. That left them 350 million to use to write off 188 million in depreciation and 232 million in interest on debt. That is how they lost $52 million last year.

Their goal is to grow the top line (gross) enough that they can afford to pay that interest and depreciation. Again, that is why they will be buying, not selling parks.

They buy a park for a couple hundred million. They load the stores with LT and DC merchandise, jacking up profitability. The loan on the park costs them $20K-ish a year in interest, but they increase operating profit by $30-50 million a year.