We have always been attracted to businesses that have significant barriers to entry and own “trophy” properties. In October our institutional research publication Asset Analysis Focus published an extensive report on Whistler Blackcomb which in our opinion meets the two above-mentioned criteria.
Whistler operates the Whistler mountain resort outside Vancouver in British Columbia, Canada. Whistler is a pre-eminent resort that offers the most skiable terrain and greatest number of marked slopes in North America while attracting the highest annual skier attendance on the continent.
Following an IPO in November 2010, WB shares faced early selling pressure attributable to lack of investor awareness/under-coverage on Wall Street, a low float with the overhang from a distressed former controlling shareholder (Intrawest) looking to complete its exit, and weak 2010 results due to disruptions caused by co-hosting the Vancouver Olympic Games. While shares have rebounded more recently, we still view Whistler as an underappreciated crown jewel asset with large competitive advantages in an industry with huge barriers to entry. We are further attracted by Whistler’s business model which features a recurring revenue base anchored by pre-paid lift tickets and supplemented with high-margin ancillary revenue from local monopoly businesses (ski schools, on-mountain retail sales, etc.).
Combined with strong pricing power and relatively stable annual attendance, this business quality is reflected in WB‟s outsized EBITDA margins and consistent free cash flow generation. Despite these compelling features, WB still trades at relatively modest multiples including 9.4x 2014E EV/EBITDA and 13.3x TTM free cash flow. By comparison, peer Vail Resorts trades at 20x free cash flow and 11.5x 2014E EV/EBITDA. In our view, this discount is unwarranted given WB‟s superior operating margins. Furthermore, we see incremental earnings upside over the next few years from pricing action, a recovery in high-value international „destination‟ visitors, growth of summertime businesses, and reaping the benefits from hosting the Olympics. Valuing WB at 12x 2015E EV/EBITDA, we estimate WB‟s intrinsic value could approach $21 per share over the coming years. In the meantime, WB continues to offer outsized return of capital to shareholders with a hefty 6.7% dividend yield.
Please click here to read our entire report on the company.
** Clients of Boyar Asset Management own shares in Whistler Blackcomb Holdings Inc.
