A key objective for the Contango Income Generator (ASX:CIE) is to deliver a sustainable yet attractive income stream by investing in mid-cap companies with strong cash flows and balance sheets.
In this mid-monthly update, I would like to present a stock in the Portfolio that reflects these investment objectives, Event Hospitality & Entertainment.
Stock in focus: Event Hospitality & Entertainment
Event Hospitality & Entertainment (EVT) is a provider of entertainment, hospitality and leisure services. EVT has operations in Australia, New Zealand and Germany. The company’s operations can be broadly split into Entertainment, which includes Cinema Exhibitions, and Hospitality and Leisure, which includes Hotels and the Thredbo Alpine Resort businesses.
Recently the cinema industry has faced some structural changes with admission revenues flat to low. EVT outperformed the overall market through value, premium strategies and better performance of Food & Beverage, but has still seen some revenue declines.
The company is working on new formats to attract audiences, such as launching the 4DX in George Street and a Junior format in certain locations. This format provides consumers multiple experiences in each multiplex, and expands the food and beverage offering. New cinema formats that include single auditoriums with multiple seating options will be trialled in Auckland as well as other locations.
Cinema has made a positive start to FY19, with the 1H19 Australian box office up +11% after the first eight weeks. This is due to blockbusters such as Jurassic World: Fallen Kingdom and The Incredibles 2, which carried over from 2H18, and the strong performance of Ant-Man and the Wasp.
Top 15 FY19 release. Source: HSX.
EVT’s hotel operations have had an outstanding performance of double-digit growth for the past three years. In FY18, hotels and resorts contributed 49% of group EBIT compared to 36% from Australia exhibition. Hotels are the largest profit source for the group. Both the hotel revenue per room and the occupancy rate improved across the hotel portfolio. This segment will continue to benefit from the growth in tourism across Australia.
A couple of new hotels will be open in FY19. New activities are also being introduced to Thredbo during the summer. EVT is also looking to expand capacity for the winter seasons.
Relative RevPAR by hotel brand ($). Source: Company Reports.
The balance sheet is in good shape. Event’s property portfolio, measured at fair value of $2 billion, is worth $12.41 per share. The current share price is $14.82. It generates strong sustainable cashflow with good cash conversion and has an attractive dividend yield of over 5%.
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