presented by aditi das jordan peasel yanan(phoebe) tan chris zakhem nyse: six presented on 12/8/2015
TRANSCRIPT
Presented by Aditi Das Jordan Peasel
Yanan(Phoebe) Tan Chris Zakhem
NYSE: SIX
Presented on 12/8/2015
2
Investment Manager
• Aditi Das• Senior • Accounting &
Finance
• Jordan Peasel• Senior • Accounting &
Finance
• Chris Zakhem• Senior • Finance & Minor
in Chemistry
• Phoebe Tan• Senior • Finance &
Minor in Statistics
3
AgendaScreening Process
Company Review
Microeconomics Conditions
Industry Review
Recent Stock Performance
Financial Analysis
Financial Projection
Valuation
Recommendation
4
Screening Process
Market Cap: $4.88 B
Piotroski’s Test: 6
DiversificationStrong ROE
Six Flags
5
Company Overview
2014 Annual Report
• 16 Theme Parks in the US• 1 Theme Park in Canada • 1 Theme Park in Mexico
• Looking to add another in Mexico
Six Flags has over 800 rides, 130 of them are roller coaster rides
Has rights to Bugs Bunny, Daffy Duck, Tweety Bird, Yosemite Sam, Batman, Superman, Yogi Bear, Scooby-Doo, The Flintstones for merchandise, advertisement and entertainment
6
Company Review
2014 Annual Report; Bloomberg
55%
5%
38%
1%
Revenue Breakdown
Theme Park Admissions
Sponsorship, Licensing & Other
Theme Park Food, Mer-chandise and Other
Accomodations Revenue
12/1/2
010
4/1/2
011
8/1/2
011
12/1/2
011
4/1/2
012
8/1/2
012
12/1/2
012
4/1/2
013
8/1/2
013
12/1/2
013
4/1/2
014
8/1/2
014
12/1/2
014
4/1/2
015
8/1/2
015
12/1/2
0150.00x
10.00x20.00x30.00x40.00x50.00x60.00x70.00x80.00x
P/E 5yr Trend
Date
P/E
7
SWOT Analysis• Strong Diversification of
services within Theme Parks• Exclusive rights on characters
to be used in Theme Parks • Well Designed Website
• High R&D Costs• High Sunk Costs• High Capital Expenditures• Dependence on Seasonal
Workforce
• International Growth through franchising in Europe and Asia
• Discussions of new park in Mexico
• Economic Recession• Rapid development in
technology• Natural Disasters, contagious
diseases, terrorism
2014 Annual Report; Bloomberg; El Financiero
8
Key Risks
2014 Annual Report
Cyber Security
Risks
Risks of Accidents
Not Adequate Insurance Coverage
Intellectual Property must be
protected
Economic Conditions Affect Third
Party Contracts
Other Leisure
Alternatives
9
Macroeconomics ConditionsSpending and Adolescents within the United States
Domestic and International Inbound Trips into the United States
IBIS
10
Industry Review
Barriers to Entry
Threat of Substitutes
Bargaining Power of Suppliers
Bargaining Power of Buyers
Competitive Rivalry Porter’s
Five Forces53%
17%
9%
8%
7%6% Market Share
Walt Disney Company
Universal Parks and Resorts
SeaWorld Parks and Enter-tainment
Cedar Fair
Six Flags
Other
4%
55%25%
16%
Product Segmentation
Sponsorship Licensing and Other Fees
Admissions
Food and Beverages
Merchandise
IBIS
11
Recent Stock PerformanceSix Flags is currently trading above the 20 day and 200 day moving average
Yahoo! Finance
12
Recent Stock PerformanceOut of its competitors, Six Flags is trading above
Yahoo! Finance
13
Financial Analysis
2010 2011 2012 2013 201447.00%
48.00%
49.00%
50.00%
51.00%
52.00%
53.00%
54.00%
55.00%
56.00%
50.07%
53.10%
54.05%54.58%
55.10%
Gross Margin
2010 2011 2012 2013 20140.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%64.94%
1.30%
37.66%
14.13%9.70%
Net Income Margin
2014 & 2013 10-K
14
Financial Analysis
2010 2011 2012 2013 20140.00x
0.50x
1.00x
1.50x
2.00x
2.50x
3.00x
3.50x
4.00x
4.50x
1.30x 1.40x
4.20x
1.63x1.30x
Current Ratio
2010 2011 2012 2013 20140.00x
0.50x
1.00x
1.50x
2.00x
2.50x
3.00x
3.50x
4.00x
1.01x 1.13x
3.62x
1.02x
0.57x
Quick Ratio
2010 2011 2012 2013 20140.00x
0.50x
1.00x
1.50x
2.00x
2.50x
3.00x
3.50x
4.00x
4.50x
5.00x
1.05x
2.33x
4.31x
3.84x
3.13x
Interest Coverage Ratio
2014 & 2013 10-K
15
DuPont Analysis
2014 & 2013 10-K
2010 2011 2012 2013 20140.00%
50.00%
100.00%
150.00%
200.00%
250.00%
300.00%
350.00%
400.00%
84.68%
338.88%
190.46%
76.93% 71.27%
Tax Burden
2010 2011 2012 2013 20140.00%
100.00%
200.00%
300.00%
400.00%
500.00%
600.00% 554.82%
2.52%
103.45%70.69% 69.94%
Interest Burden
2010 2011 2012 2013 20140.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
13.82%15.20%
19.11%
25.99%
19.46%
Operating Margin2010 2011 2012 2013 2014
0.00x0.05x0.10x0.15x0.20x0.25x0.30x0.35x0.40x0.45x0.50x
0.36x0.38x
0.35x
0.43x0.46x
Asset Turnover
2010 2011 2012 2013 20140.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%73.00%
1.71%
45.35%42.02%
50.93%
ROE
2010 2011 2012 2013 20140.00x
2.00x
4.00x
6.00x
8.00x
10.00x
12.00x
3.15x 3.45x 3.44x
6.99x
11.32x
Leverage
16
Comparable Company Analysis
SeaWorld Entertainment, Inc. (NYSE:SEAS)• Operates as a theme park and entertainment company in the U.S.• Features marine-life theme parks in Orlando, San Antonio, and San Diego• Owns Busch Garden theme parks and other various theme parks across the U.S.
Cedar Fair, L.P. (NYSE:FUN)• Owns and operates amusement and water parks, as well as hotels in the U.S. and Canada• Operates 11 amusement parks, 3 outdoor water parks, and 5 hotels• Notable parks include Kings Dominion in Richmond and Cedar Point on Lake Erie
Merlin Entertainments plc (LSE:MERL)• Operates visitor attractions worldwide• Attractions include LEGOLAND, SEA LIFE, and the Dungeons• Headquartered in Poole, U.K.
Oriental Land Co., Ltd. (TSE:4661)• Operates and manages theme parks and hotels in Japan• Parks include Tokyo Disneyland and Tokyo DisneySea• Headquartered in Japan
Cap IQ
17
Greenblatt Ratios
Cap IQ
SIX SEAS MERL 46610.0000x
0.0500x
0.1000x
0.1500x
0.2000x
0.2500x 0.2351x
0.0945x
0.2344x 0.2317xEBIT / Tangible Assets
SIX SEAS MERL 46610.0000x
0.0100x
0.0200x
0.0300x
0.0400x
0.0500x
0.0600x
0.0700x
0.0467x0.0524x
0.0583x
0.0501x
EBIT / EV
SIX SEAS MERL 46610.0000x
0.0500x
0.1000x
0.1500x
0.2000x
0.2500x
0.3000x
0.3500x
0.2818x
0.1469x
0.2927x0.2818x
Sum of Ratios
18
Comparable Company Analysis
• We used P/E, P/Forward EPS, and P/Sales
• Median multiples were selected and applied against SIX’s financial data
• We equally weighted each of these multiples for a valuation of $40.35
Bloomberg; Cap IQ
Price /LTM FY1
Company Name Ticker EPS EPS SalesSeaWorld Entertainment, Inc. NYSE:SEAS 44.2x 18.9x 1.1xCedar Fair, L.P. NYSE:FUN 25.6x 15.8x 2.5xMerlin Entertainments plc LSE:MERL 26.4x 21.3x 3.4xOriental Land Co., Ltd. TSE:4661 31.4x 31.6x 5.0x
Six Flags Entertainment Corporation NYSE:SIX 42.1x 27.9x 4.1x
Minimum 25.6x 15.8x 1.1xMean 31.9x 21.9x 3.0xMedian 28.9x 20.1x 2.9xMaximum 44.2x 31.6x 5.0x
Comparable Companies ValuationSIX Data 1.3 1.9 13.1Selected Multiple 31.9x 21.9x 3.0xPrice per Share 40.20$ 41.61$ 39.24$
Average Price 40.35$
19
Revenue Projection
(in thousands except per capita)2015E 2016E 2017E 2018E 2019E 2020E
Theme Park Revenue CalculationAttendance 26,115 26,601 27,096 27,600 28,113 28,637 Admissions 26.45 27.96 29.55 31.24 33.02 34.90 Non-Admissions 18.45 18.96 19.49 20.03 20.58 21.15 Guest Revenue - Admissions 690,666 743,643 800,684 862,099 928,226 999,425 Guest Revenue - Non-Admissions 481,766 504,340 527,972 552,711 578,609 605,721 Guest Revenue - Total 1,172,432 1,247,983 1,328,655 1,414,810 1,506,835 1,605,146 Guest Revenue - Actual 1,172,435 1,247,989 1,328,664 1,414,822 1,506,851 1,605,165
Growth Rate - Admissions 7.67% 7.67% 7.67% 7.67% 7.67% 7.67%Growth Rate - Non-Admissions 4.69% 4.69% 4.69% 4.69% 4.69% 4.69%
Forecast
(in thousands except per capita)2015E 2016E 2017E 2018E 2019E 2020E
Theme park admissions 690,744 743,727 800,774 862,197 928,331 999,538 Growth Rate 7.67% 7.67% 7.67% 7.67% 7.67% 7.67%
Theme park food, merchandise and other 481,691 504,262 527,890 552,625 578,520 605,627 Growth Rate 4.69% 4.69% 4.69% 4.69% 4.69% 4.69%
Forecast
2014 & 2013 10-K
20
WACC Calculation
Bloomberg
Risk Free Rate 2.29%Market Risk Premium 5.92%Beta (5-year) 0.905
CAPM Cost of Equity 7.644%Realized Return for past 2 years 25.96%Adjusted Cost of Equity 11.31%
CAPMCurrent Share Price $53.06Average Shares Outstanding 91,837 Market Value of Equity 4,872,883$
Market Value of Debt 1,515,382
Equity Weight 76.28%Debt Weight 23.72%
Cost of Equity 11.31%Cost of Debt 4.69%
Tax Rate 32.49%
WACC 9.38%
Weighted Average Cost of Capital
• Risk Free Rate: US 10-Year Treasury Note• Adjusted Cost of Equity: 80% of CAPM Cost of
Equity + 20% of Realized Return for past 2 years• Cost of Debt: From the projected debt schedule
21
Discounted Cash Flow2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E
EBIT 310,993 339,949 379,607 423,844 471,185 523,590 Less: Taxes (66,403) (85,593) (99,052) (113,348) (128,646) (145,575) Add: Depreciation &Amortization 168,999 148,045 128,075 108,107 105,107 119,687 125,334 131,271 137,467 144,090
changes in accounts receivable (1,794) 11,062 22,086 7,214 (6,503) 3,446 3,793 4,147 4,304 4,681 Changes in inventories (2,569) 1,307 (108) (1,073) 346 1,412 1,555 1,700 1,764 1,919 Changes in accounts payable (9,519) (243) 884 (5,149) 317 1,293 1,423 1,556 1,615 1,757
Less: Capital Expenditure 91,680 99,989 101,853 108,660 112,526 116,474 120,561 124,792 129,171 133,703
Free Cash Flow 243,645$ 254,003$ 281,403$ 312,685$ 346,382$ 383,559$ Discount Factor 9.38%PV of Free Cash Flow 238,247 227,085 230,016 233,677 236,671 239,607 Sum of PV of FCF 1,405,303$
ForecastHistorical
Long-Term Growth Rate 3.50%Gordon Growth Free Cash Flow 6,756,510 Present Value 4,220,761
Terminal Growth
Enterprise Value 5,626,064 Less: Net Debt (1,304,554)
Equity Value 4,321,510 Shares Outstanding 91,837 Price Per Share 47.06$
Value Per Share
47.06$ 2.50% 3.00% 3.50% 4.00% 4.50%8.38% 48.86$ 53.56$ 59.22$ 66.17$ 74.92$ 8.88% 44.06$ 47.95$ 52.55$ 58.11$ 64.92$ 9.38% 39.99$ 43.25$ 47.06$ 51.57$ 57.02$ 9.88% 36.50$ 39.26$ 42.45$ 46.19$ 50.62$
10.38% 33.47$ 35.83$ 38.54$ 41.67$ 45.34$
Terminal Growth
2014 & 2013 10-K
22
Recommendation
Positives: Dividend Yield is 4.42% & New Market Growth; Negatives: High and Volatile PE Ratio
We recommend adding Six Flags to the Watch List
Current Stock Price
Comparable Value
DCF Valuation
$52.55
$40.35
$47.06