Ardent investors weigh impact of fatal Dreamworld accident

A host of unpredictable factors will determine the extent to which the fatal Dreamworld accident will weigh on Ardent.

Flowers are laid outside the Dreamworld Theme Park on the Gold Coast after four adults were killed on a ride at the park when it malfunctioned yesterday. (AAP Image/Dave Hunt)

Understandably, Ardent investors don’t quite know how to gauge the likely fallout from yesterday’s fatal accident at Dreamworld, with the stock whipsawing in morning trade after yesterday’s immediate 8 per cent sell off.

At one stage today, the stock (AAD) was down a further 22 per cent but by late morning the loss was confined to7 per cent.

Village Roadshow (VRL), which operates three Gold Coast theme parks, didn’t escape unscathed, with its shares down 4 per cent.

In monetary terms, Ardent (not surprisingly) has extensive public liability insurance and presumably much of the direct imposts will be covered. But damage to brand reputation and the extent of any downturn in visits are unknown factors.

Other variables are the extent of any increased capital expenditure and how long Dreamworld will remain closed.

According to broker Citi, Dreamworld contributed 33 per cent of Ardent’s ebitda in 2015-16, excluding the contribution from the Goodlife health club chain which was divested earlier this year for $260m.

Brisbane-based broker Morgans expects a “meaningful sentiment impact” in the current year. “There is significant uncertainty surrounding the actual incident and the likely impact given its unprecedented nature,’’ the firm says.

Such incidents indeed are thankfully rare, although last year 13 thrill seekers on the Village-owned Movie World’s Green Lantern ride were left hanging for hours because of a bolt failure.

As the nearest comparison, Citi notes that UK operator Merlin Entertainment had a serious accident (two serious injuries) at its Alton Towers park in June last year.

Merlin was pinged a £5 million ($7.9m) fine and Citi estimates attendances fell 20-30 per cent. Merlin shares are now back to pre-incident levels, albeit helped by Brexit (lower sterling).

“Based on the Merlin experience, we expect Dreamworld attendance to be adversely affected over the coming peak Christmas trading period and beyond as a result of negative press commentary.’’

Citi has downgraded its forecast theme parks ebit contribution by 69 per cent for the current year, from $33m to $10.1m.

The firm has also reduced Ardent’s overall current year ebit by 27 per cent to $69.5, including a $6.5m contribution from the now divested health clubs.

This equates to a 22 per cent decline on Ardent’s 2015-16 overall ebit of $89.6m.

Morgans meanwhile expects Ardent’s theme park revenue to decline by 20 per cent and ebit by 33 per cent in the current year, before stabilising in 2017-18.

The firm expects Ardent’s current-year ebit to decline by 11 per cent.

Both firms have downgraded Ardent from buy to hold calls.

As with the fallout from the incarceration of Crown Resorts employees in China, there’s guesswork a plenty.

Don’t expect too much clarity at Ardent’s AGM in Sydney tomorrow morning, either. But at this stage, the cumulative 16 per cent Ardent sell-off looks wholly justified.

The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not own shares in the stocks mentioned.