Compagnie des Alpes: Is it worth the 'high-altitude' risk?

Compagnie des Alpes (EPA: CDA) with a market capitalisation at the time of analysis of €593m, describes itself as the leading operator in the €6.5bn European ski market. While it only operates ski resorts in France, the company remains one of only two major European operators holding a broad portfolio of several ski resorts, parks and other attractions.

Its business model is based on very long term concession agreements on a portfolio of 11 ski areas that it equips, maintains and operates, with seasonal lucrative revenue streams from entrance fees to ski lifts. 

The French ski market (worth €1.3bn annually in revenue) is dominated by CDA at 32% by value, while its two competitors – Sofival and S3V – control just 5% each. Its competitive advantages are operating in resorts with vast high altitude ski areas that are well known in Europe and which have considerable professional accommodation capacity.

The company’s other major line of business is developing and operating leisure parks i.e., theme, edutainment and animal parks. Nine such sites spread across France, Belgium, and the Netherlands attract 8.3m visits mostly in the spring and summer and so complement winter visits to its ski resorts.  

Sixty percent of leisure park revenue comes from entry ticket sales with most of the balance from customer spending in shops, restaurants and the parks’ other attractions.  
CDA is the fourth largest player in the European leisure market in terms of visitors but attracts only 8m out of a potential 160m pan-European market, far behind the leader: Merlin (64m). Though comparable with Euro Disney in terms of visitor numbers, it lags far behind in annual revenue (€1.3bn versus €321m).  

The European leisure market is very diverse with many family-owned or independent parks and over 1 million visitors per season. Grevin Musee (which it describes as ‘indoor leisure’) and Consulting, are two other businesses of CDA. They generated €11m and €2.5m of revenues in 2016-17 respectively, and while promising, they are both very much a ‘work in progress’.

First-half figures for 2017-18 were favourable: CDA's sales and EBITDA were both up, and cost of debt substantially down.

Investor risks

Its concessions to run ski resorts expose it to regulatory and government risk. A minimum of 33% of voting control is retained by the French government department: Caisse des Depots. CDA has a heavy exposure to unfavourable weather conditions, and to climate change. It is also dependent on visitor numbers and so to the adverse impacts that might reduce footfall, such as employment, terrorism, transport, the economy, geopolitical tensions, and alternative entertainment. 

CDA reached a 52-week low on 18 October 2018, versus a 52-week high of €36.10 on 22 January 2018.  

For

Based on 2016-17 actuals: modest gearing (50%); current share price is lower than its Book Value (€34.17); high asset cover (€50.36 per share); high interest cover (11x); it took €0.78 of equity to generate €1 of revenue; its share price (€24.35) is trading at two-thirds of its 52-week high (€36.10), high EPS yield (5.3%), dominant and large player, well-established business, consensus analysts’ forecast of CDA’s short-term performance is rising share price, earnings, and dividend. Whilst that might turn out to be true, is the return on equity commensurate with risk?

Against

Based on 2016-17 actuals: poor dividend yield (2.05%), high PE (19x), current ratio (0.32); and return on equity (5.3%).

Conclusion

The stock carries a low actual equity return, plus several significant and uncontrollable external risks. Equity investors seeking exposure to the holiday and leisure sector may consider it, but on the whole yield-seeking investors could hold out for better days.