Six Flags Entertainment Corporation

 

SIX Details
 
SIX Launches New Guest Reservation to Avoid Overcrowding: Six Flags Entertainment Corporation (NYSE: SIX) is engaged in owning and operating regional parks, which consists of theme, water, and zoological parks. These parks provide water attractions, rides themed areas, concerts, shows, restaurants, and retail outlets. The company operates its theme parks in the United States, Canada, and Mexico, to name few. On May 13, 2020, the company announced that it has unveiled a ground-breaking, new guest reservation system, which will permit parks to handle attendance level on a daily basis and evade overcrowding. The above step was taken in accordance with Centers for Disease Control (CDC) recommendations on social isolation. The process is quick, modest, and will safeguard the visiting guests.
 
1QFY20 Key Highlights for the period ended 31 March 2020: During the quarter, the company reported total revenue of $102.5 million, down from the year-ago figure of $128.2 million. The decrease in revenue was due to 27% decline in attendance of guests, owing to COVID-19 pandemic-related suspension of the company’s park operations. Nonetheless, the company has offset most of the revenue decline by its cost cutting initiatives, which was executed post the postponement of park operations. During the quarter, the company reported a net loss of $84.5 million, as compared to a net loss of $69.1 million reported in the year-ago period. In 1QFY20, the company reported adjusted EBITDA loss of ~$42 million, a rise of $10 million loss compared to the previous corresponding period.
 

Key Highlights (Source: Company Report)
 
Balance Sheet Position: As on 13 March 2020, the company paid $21 million in dividends to its shareholders. During the period, the company capitalized $51 million in new capital projects. The company exited the period with net debt amounting to $2,241 million as of 31^st March 2020. This indicates a net leverage ratio of 4.3 times of adjusted EBITDA. The company’s revolving credit facility stood at $460 million and cash on hand stood at $372 million.
 
Senior Notes Offering: The company recently stated that Six Flags Theme Parks Inc. (“SFTP”), an indirect wholly owned subsidiary of SIX, has wrapped its private offering of $725 million aggregate principal amount of senior secured notes. The net proceeds from this offering will be utilized to repay indebtedness and the remaining amount will be used for general corporate purposes.
 
What Investors Need to Know: Due to the coronavirus pandemic, sponsorship, international agreements, and accommodation businesses are likely to weigh on the company’s performance in the near-term. However, consistent focus on guests’ spending growth, membership and loyalty reward programs, and product expansion is likely to boost the top line, going forward.
 
Stock Recommendation: The stock of SIX closed at $22.69 with a market capitalization of ~$1.92 billion. The stock made a 52-week low and high of $8.75 and $59.52, respectively, and is currently trading below the average of its 52-week trading range. The stock has delivered a positive return of ~21.10% in the last one month but went down ~51.26% in the last three months period. Gross margins in Mar’20 stood at 92.4%, higher than the industry median of 47.7%. The company remains focused on cost-reduction efforts. Additionally, SIX is dedicated towards certain strategic targets to enhance its customer base and improve profitability. However, people are dodging large public get-togethers, with leisure & entertainment stocks getting beaten. On the valuation front, the stock is trading at an EV/Sales multiple of 3.7x as compared to the industry median of 1.7x on TTM (Trailing Twelve Months) basis. Considering the industry-wide scenario along with above-factors, we have a watch stance on the stock at the closing price of $22.69, up 18.73% on 18 May 2020.
 
 
SIX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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