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SeaWorld Entertainment (SEAS)Blackfish Scared Investors, but Not CustomersLONG, TP $28 (+40%)RESEARCH TEAMParker Kim, Senior DirectorVishal Bhat, Senior AnalystNancy Liu, Junior AnalystPatches Chen, Junior AnalystNathan Kim, AnalystAustin Partridge, Analyst
Table of Contents
Investment Thesis
Investment ThesisThe “Blackfish” Expose Has Scared off Investors…
-40%
TP $28
LTM Stock Price Chart for SEAS
‘
Investment Thesis…but not Theme Park Customers
Blackfish Release
-1%
-13%
+0.3%
-5.2%
-2.2%
Park attendance has taken a hit, but
nowhere close to the 40% drop that’s priced
inSeaWorld Quarterly Attendance (000s)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q42012 2013 2014
Investment ThesisAirline Ticket Sales Show Customers Are Loving Cheap Oil
Oil plumm
ets
+14%+8% +2%
Cheap plane tickets mean everyone booking
a vacation
US Airline Ticket Sales ($mns)
Company Overview
Company OverviewThe King of the SeaAnnual Revenue
Spending per PersonAdm
issionsIn-Park
Over 22.4 million guests visited SEAS
parks last year, including 3.6
million international
visitors
Company OverviewSince its 2013 IPO and Blackfish, SEAS Has Been Improving
SEAS IPO’d from Blackstone ownership in 2013 at $27
per share
$250mn (13% of market cap)
authorization to buyback SEAS
shares while price is low
Share Buyback Cost Restructuring
Long Term Projects
Brand Improvement
$50mn cost cutting effort targeting 300
jobs with funds to be deployed into marketing and advertising to
capture benefits of current low oil
prices
SEAS spends ~$110mn per
year on advertising and
marketing before this year’s cost-cutting funded
increase
$300mn is being spent on updates to the killer whale exhibits in the 3 Seaworld parks,
designed to encourage
previous visitors to come back
Industry Overview
Industry OverviewSnapshot of the Water Park and Theme Park Industry
The United States has the largest theme park market in the world:
Theme parks are an attractive investment sector:
5 of the 10largest theme parks
11 of the 25most visited theme
parks
$15.4bnin US theme park
revenue
stable cash flowallows safe leverage
Strong consumer value propositionRelative to other service based out-of-home entertainment
Industry OverviewCompetitor Analysis Shows SEAS Success and Growth
Six Flags8.2%
Universal9.5%
Disney14.1%
Other39.5%
Seaworld
28.7%
Water Park Market Share
Water Park Revenues by Company ($mns)
SEAS
DISUNI
SIX
Theme Park Attendance (mns of visitors)
SEAS
DIS
UNISIXFUN
Industry OverviewAnalysis of Competitive Factors Shows Opportunity
Indirect Competition
Competition Basis
Direct Competition
Seaworld Strengths
Competes with other forms of recreation and entertainment: movies,
at-home-entertainment, sports, attractions, vacation travel
123
Location, ease of travel accessPrice: admissions and bundlesQuality: rides, creativity, cleanliness
abc
Brand recognitionZoological collection as differentiatorStrong variety in rides and attractions
Financial Overview
Financial OverviewRelative Valuation Constrained by Small Peer Universe
The relative valuation is constrained by the small number of publicly-traded theme parks, and the lack of publicly-traded water parks.
Company Ticker EBITDA margins EBITDA/Attendee Attendance (mns) EV/EBITDA P/ESix Flags SIX 29% $13.3 24.9 16.9x 63.9xCedar Park FUN 29% $14.2 22.9 13.9x 31.2xMerlin Entertainment MERL 33% $6.9 45.8 12.4x 24.1x
Seaworld SEAS 25% $15.0 23.2 10.0x 34.7x
Median 29% $13.3 24.9 13.9x 31.2xAverage 30% $11.5 31.2 14.4x 39.7x
Outperform/Underperform UNDERPERFORM OUTPERFORM UNDERPERFORM OUTPERFORM MIXED
Target Price (Median) $36.99 $17.44Target Price (Average) $38.80 $22.22
Financial OverviewHistorical Valuation Gives a More Accurate Multiple
Blackfish
Pre-Blackfish Average: 10.4x
Current:
8.8x
Historical EV/EBITDA Multiple (2013-2015)
Historical P/E Multiple (2013-2015) Blackfish
Pre-Blackfish Median: 48.4x
Current:
31.1x
Average
Median
Resulting Target Price: Resulting Target Price:$23.41 (+17%) $27.09 (+36%)
Financial OverviewSummary of Valuation Methods and Target Price
Summary of Valuation ResultsCurrent Price:
$20 +94%
+85%
+35%
+17%
+11%
-13%
Average TP $28
(+40%)
Considerations
ConsiderationsCompetitors are a Primary Risk Factor for SEAS
$147 $147 $105 $85
The $100 psychological barrier of many Orlando theme parks should reduce their
ability to compete with Seaworld, the only remaining sub-$100 theme park
ConsiderationsHigh Leverage is Not a Concern Due to Strong Cash Flow
Capital Structure
Equity580mn
Debt1.56bn
Operating Cash
Flow$260m
n
Interest
$29mn
CFO vs. Interest Comparable Balance Sheet Health D/E
Interest Coverage
Seaworld has relatively low debt compared to other
theme parks and has industry-leading ability to meet its interest payments
Investment ThesisThe “Blackfish” Expose Has Scared off Investors…
-40%
TP $28
LTM Stock Price Chart for SEAS
‘
Investment Thesis…but not Theme Park Customers
Blackfish Release
-1%
-13%
+0.3%
-5.2%
-2.2%
Park attendance has taken a hit, but
nowhere close to the 40% drop that’s priced
inSeaWorld Quarterly Attendance (000s)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q42012 2013 2014
Investment ThesisAirline Ticket Sales Show Customers Are Loving Cheap Oil
Oil plumm
ets
+14%+8% +2%
Cheap plane tickets mean everyone booking
a vacation
US Airline Ticket Sales ($mns)
SeaWorld Entertainment (SEAS)Blackfish Scared Investors, but Not CustomersLONG, TP $28 (+40%)RESEARCH TEAMParker Kim, Senior DirectorVishal Bhat, Senior AnalystNancy Liu, Junior AnalystPatches Chen, Junior AnalystNathan Kim, AnalystAustin Partridge, Analyst
DO NOT WRITE OVER, TEMPLATE SLIDEDON’T EVEN THINK ABOUT IT MISTER