I had a look at Whistler Blackcomb (OTC:WSBHF) in December as I was hoping the company was able to get its act together after a 'bad' winter sport season last year. I actually was quite pleased with what I saw, and decided to continue to cover the company as its generous dividend policy is returning the majority, if not all, of the free cash flow to the shareholders.
WB data by YCharts
There is some trading in Whistler on its American listing, but I would strongly recommend you to trade in the company's shares through the facilities of the Toronto Stock Exchange, where Whistler is listed on the main board. The ticker symbol is WB, and the average daily volume is approximately 53,000 shares.
The amount of visitors is up, and so is the revenue
I already said in the first article the 2016 ski season was off to a good start, and it's nice to see this being confirmed in the company's quarterly update. The total amount of skier visits increased by almost 25% to 502,000 in the first three months of Whistler's financial year, whilst the amount of 'non-skiing' visitors also increased by approximately the same percentage.
Source: financial statements
That's indeed something I would consider to be a 'good start', as the company's revenue also increased to C$67M ($49M) [from less than C$55M ($40M)]. As the revenue increased at a faster rate than the majority of the operating costs, the operating income jumped from a break-even point in Q1 FY 2015 to a net operating income of C$6.8M ($5m) in the first quarter of FY 2016. The operating margin was approximately 10% and that's pretty good for a quarter I wasn't expecting much from.
On an after-tax basis, Whistler Blackcomb was able to convert a C$4.6M ($3.36M) net loss into a C$1.2M net profit ($0.9M)(after deducting the payments to its non-controlling interests).
Source: financial statements
Things are looking even better on the cash flow front, as the adjusted operating cash flow came in at C$35.4M ($26M) resulting in a free cash flow of C$27M ($20M) in the first quarter. That's great, but you should definitely keep in mind approximately 2/3rd of the operating cash flow was 'generated' through changes in the company's working capital position. The main reason for this specific change is the fact the company has been selling full-season ski-passes which will be reported as 'deferred revenue' on the balance sheet. So people have pre-paid ski-passes for later use which means the company has now generated more incoming cash flow for future 'deliveries'.
The dividend isn't fully covered, but this will change
So, if you'd now use the adjusted operating cash flow [C$12M ($8.8M)] as a starting point to find out whether or not the dividend is sustainable, you can clearly see the company is still free cash flow positive, even after removing the pre-paid passes. Whistler has slashed its capital expenditures by approximately 40% to C$8.6M ($6.2M), resulting in a positive free cash flow of C$3.4M ($2.5M).
Source: company presentation
I do consider the majority (if not, all) of the capital expenditures to be sustaining capex. According to the accompanying Management Discussion, the company does plan to invest in growth as well as it will upgrade and enhance the learning terrains as well as expanding the capacity of some restaurants which should have positive effects on the revenue and cash flows of Whistler Blackcomb.
So whilst we're waiting for the additional revenues to kick in, one has to look at the current situation to find out whether or not the dividend is sustainable. On an adjusted basis, you wouldn't think it is, as the free cash flow was just C$3.4M ($2.5M) whilst the company paid C$10.5M ($7.7M) in dividends and distributions to non-controlling interests. However, the first quarter isn't representative of the entire financial year, and I'm really expecting a lot from the current quarter. The ski season is in full swing and from what I hear from (frequent) users of the Whistler Blackcomb facilities, it's a very enjoyable winter, and I have high hopes for the current financial results.
Source: company presentation
Because, let's have a look at what happened last year (which was a worse winter than the one Whistler is experiencing now. The adjusted free cash flow in Q1 FY 2015 was negative to the tune of C$11M ($7.75M), but after seeing the financial results of the first semester of the previous financial year, this FCF negative situation was already converted into a substantial positive free cash flow, with an adjusted FCF of C$75M ($56M) (indicating Whistler generated C$86M ($63M) in adjusted free cash flow in the second quarter). And as we are now already sitting on a positive cash flow and as Q2 of this financial year should be better than last year, I don't think anyone will disagree with me Whistler should be able to perform better this year, and definitely in the first half of the year. On top of that, the total amount of visits by February 8th was the highest in the history of the company! From the press release:
Total visits for the 2015-16 season to February 8, 2016 were 1.14 million, an increase of 21% over visits to the same date last year and representing the highest year to date visits in the Company's history
Whistler Blackcomb is taking advantage of a strong start of the year, as its total amount of visits increased by in excess of 20%, resulting in a double-digit percentage increase in the company's revenue as well. On top of that, the company was profitable and free cash flow positive (which definitely wasn't the case last year).
The adjusted free cash flow (whereby I adjust the operating cash flow for deferred revenue) wasn't sufficient to cover the dividend payments, but as Whistler Blackcomb is subject to seasonal effects, I expect the current quarter to make up for a lot of the 'shortfall'. I'm looking forward to see the visitor numbers and revenue for Q2 FY 2016 as I wouldn't be surprised to see a double-digit growth rate as well.
Disclosure: I am/we are long WSBHF.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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