Sunday, 29 June 2014

Seaworld making a splash

Seaworld (SEAS) is famous for its roller coasters, marine animal shows and water rides satisfying both thrill seekers and animal lovers from all around the world. It owns 5 of the top 20 American theme parks and is the 6th largest by attendance in the world. SEAS is not as large as the major destination parks like Disney and Universal (owned by Comcast) but its much larger than regional parks like Six flags and Cedar fair. SEAS is more hedged than both as in boom times destinations parks like Florida do better while in more depressed times the local regional parks outperform.

Don't work with animals
Everyone in media knows not to work with animals however SEAS theme park business is totally reliant on them for their shows. SEAS believes that they have the largest marine group with approximately
86,000 animals, including approximately 8,000 marine and terrestrial animals and 78,000 fish including the 29 infamous killer whales. More than 80% of their marine mammals were born in human care.

SEAS prices tend to be more reasonable than the other big two Florida parks. The stock is also reasonable SEAS estimate the cost to replicate their portfolio of parks would exceed $5 billion while SEAS market value including debt is $4.1 billion. Last year 65% of attendance was from repeat visitors with international guests accounting for 15% of visits. There is room to get busier as capacity utilisation at SEAS branded parks is 24% overall and 54% during peak season.

Not a whale of a deal
Shamu the famous killer whale is one of the key acts. However in 2010 one of the trainers unfortunately drowned leading to a legal and public relations battle over captive performing animals which continues today. The company also has geographic risk with Florida around 55% of revenues.

Not a deadliest catch
SEAS is still a US story but nature based animal parks can translate well overseas. SEAS is currently in a 6 month negotiation period with a partner under which they would move forward with multiple parks in the Middle East. Importantly for investors this would not be capital intensive as SEAS will lend their brand and operational experience in return for royalties. SEAS also owns the Bush Gardens and Sesame Place parks.

It is estimated that SEAS will not pay tax until 2017 with $656 million of operating losses. After making back the losses SEAS could eventually qualify as a REIT and be exempt from paying income tax if they distribute no less than 90% of their income as taxable dividends.

SEAS marine focus differentiates it from the other theme parks and unlike other parks SEAS has the opportunity to ride the international growth that is still to come.


Disclosure: Decisive does not have a position in SEAS stock
The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.