Ardent Leisure Group (ASX:AAD) is an owner and operator of leisure assets. Most of its operations are situated in Australia, including theme parks (Dreamworld, WhiteWater World, SkyPoint), AMF and Kingpin bowling centres, d'Albora Marinas and Goodlife Health Clubs. The group also runs Main Event, a fast-growing portfolio of family entertainment centres in the United States, predominantly in the state of Texas.
Earlier this year, Ardent reported an increase in third quarter 2015 revenues of 17%. This was largely driven by another solid performance by its Main Event family entertainment division, which increased revenues by 58.3 per cent and like-for-like earnings 10 per cent.
Main Event opened its 20th centre in April and plans to open another seven in fiscal 2016 and another eight the following year.
But while the US business continues to grow, Ardent's Goodlife Health Clubs dropped both in earnings and revenue. Like-for-like revenues dropped 4.9 per cent while earnings fell 6.4 per cent amid a rise in competition from rival health clubs, the company said that improvements have been made and customers seem to be responding positively to the conversion of gyms into 24/7 clubs
Ardent said its acquisition of the Fitness First health clubs in Western Australia has not delivered the expected increases in memberships.
The group's theme parks, which include Dreamworld on Queensland's Gold Coast, recorded flat revenues and earnings during the quarter.
What does Ardent do now with its underperforming divisions?
As a parent I can tell you that the biggest competition facing any leisure and entertainment business today is online digital entertainment. Every child and teenager that I know would rather spend time on their PS4 or XBox than venture outside.
So the question remains, while Main Event revenues continue to outperform, what does the company do with its underperforming health clubs, bowling centres and theme park divisions?
One of the problems facing Ardent has nothing to do with its business operations but, the surprise retirement of Greg Shaw back in March. Greg retired after 13 years in the role and was replaced by former editor of The Australian Women's Weekly, Deborah Thomas. This decision was a surprise to everyone and not well received by the investment community. Time will tell if this decision was correct.
Valuation
Ardent's current price of around $2.20 is in the lower third of its 52-week range. The stock has fallen around 15% in the past 12 months, and its P/E is close to 20. For me, the share price is overvalued and it is a good time to sell.
