“With a balance sheet in good shape,” the weekly financial publication wrote in a “Sizing Up Small Caps” article, “there’s no reason to doubt that [ClubCorp CEO Eric Affeldt] can keep hitting it straight down the fairway.”
An article posted on June 27 in the “Sizing Up Small Caps” section of barrons.com, the website of Barron’s, the weekly financial publication, cited a bullish outlook for ClubCorp, based on the Dallas-based management firm’s strong performance since its initial public offering in September 2013.
Written by David Englander, the article, headlined “ClubCorp: Still Hitting It Straight Down the Fairway,” began:
“While It’s a relatively new public company, ClubCorp Holdings hasn’t disappointed its investors. Since its September 2013 initial public offering, its shares have shot up 70%. They are 31% higher than when this column wrote favorably about the company in spring 2014.
“At a recent $24, the stock still looks attractive,” Englander continued.
“ClubCorp owns and operates 160 golf and country clubs in the U.S., encompassing about 200 courses,” the article continued. “The industry’s largest player, it has been rolling up clubs and refurbishing them. In the past year, its memberships have soared 22%, to 180,000, driving sales and earnings higher.
“There’s plenty of mergers-and-acquisitions potential left,” Barron’s noted. “The U.S. golf market is highly fragmented, with about 4,000 clubs. Most of them are run by small operators, are not well-capitalized, and need renovations. In fact, refurbishing existing clubs presents a sizable opportunity, with ClubCorp management targeting 10% to 15% cash-on-cash returns there.”
The Barron’s article then cited Christopher Agnew, an analyst with MKM Partners, who estimated that earnings before interest, taxes, depreciation, and amortization (EBITDA) could jump 20% by 2017 for the management firm, to nearly $280 million, from the $233 million expected this year. ClubCorp’s management has set a $300 million EBITDA goal by 2018, not including new acquisitions, Barron’s noted.
Agnew told Barron’s that he now values ClubCorp shares at $30, on an enterprise value of 10 times his 2017 estimate— but that he believes that, in two years, they could be worth as much as $40.
ClubCorp members spend, on average, more than $5,000 per year, “and the affluent clientele tends to stick around,” Englander noted. “Retention rates exceed 80%.
“Member dues contribute to an attractive business model, with recurring revenue representing nearly 50% of the total,” he added. “The remainder comes from food, drink, and golf-related sales.
“This year, earnings could reach $32 million, or 49 cents a share, on $1 billion in revenue,” the article noted. “They could rise 32%, to 65 cents a share, in 2016.”
Since the initial public offering, Englander noted, ClubCorp has been “an aggressive acquirer,” noting that the management firm has added 63 golf and country clubs via that route in the last two years, primarily through its $265 million purchase of Atlanta-based Sequoia Golf and its 30 clubs last August.
“Acquisitions can offer meaningful synergies, with roughly half related to cost savings from centralized procurement and back-office support,” the Barron’s article noted. “Remodeling clubs—what ClubCorp calls ‘reinventing’—boosts memberships. Updates tend to focus on non-golf areas, such as fitness centers, restaurants, and pools, to boost a club’s appeal to families. ClubCorp has refurbished 33 golf and country clubs, and 21 business clubs, and plans to complete 30 this year.”
On an earnings call this past April, Englander wrote, ClubCorp CEO Eric Affeldt noted the success of the remodeling of the Prestonwood Country Club, which ClubCorp bought last year. The improvements have helped Prestonwood’s membership soar by nearly 50% at its two sites in Texas (Dallas and Plano), with 40% of new members under age 40, it was noted.
Englander also cited the success of ClubCorp’s “O.N.E.” promotion in also driving sales, noting that the program, which gives members discounts on dining and access to other clubs around the country, “carries high margins and improves retention rates.”
“ClubCorp’s balance sheet is in good shape,” Englander wrote. “With about $100 million in annual free cash flow, there’s plenty of flexibility for the company to continue its growth.
“On the April call, Affeldt sounded upbeat about his company’s prospects,” the article concluded. “Given what he has accomplished since the IPO, there’s no reason to doubt that he can keep hitting it straight down the fairway.”
Tell Us What You Think!
You must be logged in to post a comment.