(B)(N) SEAS SeaWorld Entertainment Incorporated

The Fundamentals

Deal Book. The Blackstone Group LP came calling last week and they wanted us to buy their stock at [P/E] 155x earnings (which we declined) but they have also gambled about 20% of their net worth on buying SeaWorld Entertainment Incorporated in 2009 and then venturing to float its stock as an IPO for $2.5 billion in April 2013 and there is now a large short position that might cause them some uneasiness (Bloomberg, August 5, 2016, Blackstone’s SeaWorld Stake Turns Minnow).

SeaWorld itself didn’t get much out of the deal, maybe $254 million according to its cash flow statement for 2013, but the Blackstone Group has cashed-in $2.3 billion by selling its shares between $27 and $30 in April and December 2013 and again in March 2014, and it still holds 19.5 million shares (or 20% out of 85 million in the float) which are trading today at $13.50 and still worth about $260 million.

The penguins take New York

But SeaWorld is also trading at [P/E] 53x earnings ($21 million) and it paid-out more than three times that amount ($75 million) in dividends to the shareholders for a current dividend yield of 6.7% which is high, even extraordinary, but it doesn’t look that good to the shareholders who bought their stock at $30 in 2013 and 2014.

And it won’t look that good to the investors now if the stock doesn’t hold its price or if the earnings don’t keep up, or both.

The Hunt For An Income – Gone Fishing

The investors must be dazzled by the excitement and cash flow of a theme park but they’re very expensive to run, and they aren’t worth anything if they’re closed or rundown, and SeaWorld’s net income is only $21 million on revenues which are steady at about $1.4 billion.

In other words, their return on their net worth is 5.3% and less than 1% on their total assets which really need to be “produced” as tickets and family fun, and their earnings on the revenue are only 1.5% and less reliable than a grocery store, all of which makes them sound like a private company begging for a takeover (again) and not one that’s an arm’s length investment for us.

After all, a company only benefits from a public float if it’s able to sell some of its own equity into that market at a high price; otherwise, it needs to create “shareholder value” every quarter, which becomes a problem if the earnings aren’t being produced.

But thanks for the offer and we’ll take a look at it; please see Exhibit 1 below for the more crunching details (and click on it and again to make it larger as required).

Exhibit 1: The Penguins Take New York

For more examples of the (B)-class portfolio in difficult markets, please see our recent Posts on”The “W” Syndrome“, Steel,  Green Energy and The Coal War; and the Canadian Mines have also taken-off – please see our recent Post “(B)(N) Extreme Economics – The (New) Canadian Mines” for a heads-up on that.

And for more information and examples of the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“ and for an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

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Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”). The Canada Pension Bond®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.