six flags final
TRANSCRIPT
Team “Square Alpha” Research Industry Sector, Entertainment Facilities
Date: 11/12/2016 New York Stock Exchange (NYSE)
This report is published for Global Markets Investments Club Annual IBS Stock
Pitch Challenge purposes.
Ticker: SIX – NYSE Current Price: 53.90 USD Target Price: 60.19 USD Recommendation: BUY (11.70% Upside)
SIX: Riding Higher
We issue a BUY recommendation on Six Flags Entertainment Corporation (SIX) with a one-year
target price of $60.19, which offers a 11.70% upside from its closing price of $53.90 as of
10/26/2016. SIX has a stable historical performance and enjoys robust growth potential driven by
consumer confidence level and healthy consumer base. However, market concerns about quarterly
earnings led to over 20% drop of its 52-week high of $62.7 in 3Q2015, though recovering to $53.90
in late October. We believe SIX’s season pass (introduced in 2010) and membership (introduced in
2013) strategy will continue to generate stable revenue each year, with in-sight revenue from global
expansion starting 2019.
Strong Support by Prospect Industry Performance
Amusement park industry has been growing steadily in the past few years due to stronger consumer
confidence and spending after 2008 financial crisis. Over 400 enterprises operate in the industry and
five major players take over more than 98% of market share. Over the next five years, the industry
is expected to grow at a CAGR of 2.4% from $16 billion in 2016 to $17.9 billion in 2020E.
Robust Growth Potential from Season Pass and Membership
SIX’s season pass and membership have been one of consumers’ favorites due to deep discounts
and affordability (up to 72% savings compared to single-ticket). Thanks to this strategy, each pass
holder spends 2x compared to single-ticket holder. And we expect its penetration rate (season pass
& membership attendance to total attendance) to grow from 56.80% in 2016E to 60.00% in 2020E,
implying a five-year CAGR of 4.51% in attendance numbers. Besides, given slow growth of U.S.
population, SIX shows strong, unaffected and growing demand for season pass and membership.
Marginal-Cost Revenue Contributed by Global Expansion
SIX started its global expansion in early 2014 and has entered licensing partnership with companies
from emerging markets, such as China, Vietnam and Dubai. Its licensing strategy requires no capital
expenditure from SIX and generates revenue from both licensing fees and earnings allocation. We
expect three parks to open in 2019 (two in China and one in Dubai) and another two parks (in
Vietnam) open in 2020, contributing to premium of 4.8% and 5.8% of domestic revenue in 2019E
and 2020E respectively.
Attractive Profitability and Reliable Liquidity Sources
Due to increasing operating efficiency, SIX enjoys higher EBITDA margin of 36.75% in 2016E,
compared to industry average of 25.69% TTM, with consistently positive cash flows from operating
activities (CFO) from $501 million to $582 million during 2016E-2020E. Besides solid CFO, SIX
has the option of $250 million revolving loan to satisfy any anticipated liquidity needs, such as
working capital, capital expenditure, stock dividends and discretionary common stock repurchases.
Six Flag's Key Financial Ratios
Key Ratios 2015 2016E 2017E 2018E 2019E 2020E
EBITDA margin 35.35% 36.75% 36.83% 37.09% 37.16% 37.22%
Net profit margin 15.26% 16.58% 16.89% 17.33% 17.61% 17.93% ROA 7.77% 9.26% 9.98% 10.79% 11.54% 12.36%
Current ratio 0.84 0.97 1.04 1.16 1.27 1.40
Quick ratio 0.72 0.71 0.72 0.74 0.75 0.75
Cash conversion cycle 14 4.54 5.33 4.42 3.55 2.64
Cash turnover 13 12.80 12.61 11.16 10.59 9.78
CFO/EBIT 1.40 1.29 1.28 1.23 1.20 1.17 CFO/CapEX 4.15 4.11 4.11 3.96 3.91 3.84
Long-term debt to assets 0.62 0.61 0.61 0.61 0.60 0.60
Interest coverage 4.45 5.11 5.42 5.79 6.14 6.53 EPS (in $) 1.65 2.00 2.18 2.39 2.60 2.83
Dividends (in $) 2.14 2.29 2.44 2.59 2.74 2.89 Source: Company report, Team estimates
Market Profile
Closing Price $53.90
52-Week Price Range $45.2-$62.7
Average Daily Volume 654,284
Shares Outstanding 92.1M
Market Cap 4986.7M
Dividend Yield (TTM) 4.3%
P/E (TTM) 41.6
EV/EBITDA (TTM) 16.8
Source: Bloomberg
Valuation Breakdown
DCF $63.17
Weight 50.00%
Multiple $57.22
Weight 50.00%
Target Price $60.19
Source: Bloomberg, Team estimates
Six Flags Entertainment Corporation
85
95
105
115
Stock Price Movement
SIX US Equity SPX Index
FUN US Equity
Source: Bloomberg
1.65 2.00 2.18 2.39 2.60 2.83
0
500
1,000
1,500
2,000
0.0
1.0
2.0
3.0
2015 2016E 2017E 2018E 2019E 2020E
SIX's EPS and Revenue Forecast
EPS (in $) Revenue - RHS (in mn $)
Source: Company report, Team estimates
Business Description
Six Flags Entertainment Corporation is the largest roller coaster theme park in the world per number
of parks it operates and achieved $688 million revenue in 2015, with a) 57.1% from theme park
admissions; b) 41.5% from theme park food, merchandise and other; c) 1.4% from accommodations
and d) 4.68% from sponsorship, licensing and other fees. (Table 1)
There are 16 theme parks in United States, and two parks in Mexico and Canada (Exhibit 1). Given
effective coverage radius of 50 miles and 100 miles, each domestic park generally serves 100 million
people and 175 million people respectively. Besides, all parks are featured with unique roller coaster
rides combination and placed within regions with high population density, such as Vallejo, Los
Angeles, Atlanta, New Jersey, Chicago, Washington DC and New England.
Different from regular amusement parks, SIX attracts consumers by offering thrilling and exciting
roller coaster rides while maintaining some regular rides for non-roller-coaster riders. Thus,
continuous introduction of new rides facilitates its consumer base, with ages ranging from 15-year-
old to 40-year old. Besides regular-themed roller coaster rides, SIX also holds exclusive long-term
licenses of characters from Warner Bros. and DC Comics, such as Batman, Suicide Squad and
Superman, which are currently used for marketing purpose.
Company Strategy
Global Expansion: Compared to domestic amusement park peers (excluding Walt Disney and
Universal Studios), SIX has taken a lead in global expansion using no-CapEx licensing strategy,
which provides revenue premium but requires no further investments apart from operation
assistance and brand licenses.
Active Pass Base: Leveraging on season pass and membership strategy, SIX provides affordable
pass tickets and thus can attract and retain a larger consumer base. Meanwhile, SIX is planning to
introduce other passes to attract more customers. And thanks to big-data driven marketing
strategies, SIX can better target potential consumers. (Table 2)
Cutting-Edge Innovation: SIX has been leading the roller coaster industry with featured thrilling
rides and recently introduced new Virtual Reality (VR) technology to enhance multi-dimensional
and interactive riding experience, such as Superman and Batman rides. With VR headsets, riders
can choose different specially-designed storylines and even use “weapons” by moving headsets.
Industry Overview and Competitive Positioning
Amusement park industry, featuring with high entry barriers, has been growing steadily in the past
few years due to stronger consumer confidence and spending after 2008 financial crisis. The industry
revenue heavily relies on leisure time and disposable income of consumers. Over 400 enterprises
operate in the industry and five major players take over more than 98% of market share. Over the
next five years, the industry is expected to grow at a CAGR of 2.4% from $16 billion in 2016E to
$17.9 billion in 2020E.
Consumer Base Overview
Slow Population Growth & Large Young Population: Per U.S. Census Bureau, population
between 0 and 44 years old is expected to grow by 2.5% from 2016E to 2020E while total population
by 5%, showing a mild and slow growth (Exhibit 2). Regarding amusement park industry’s
consumer base, it is majorly teenagers and younger (under 18), occupying 22% of total attendances,
while adults (18-44 years old) accompanying kids, taking up 36%, in 2016.
Geographic Competition Overview
Fierce Competition in Populated Areas: Five major players in the market are Walt Disney,
Universal Studios, Six Flags, Cedar Fair, and Sea World (Appendix 7), with the first two taking up
75% of total industry earnings utilizing only two locations of Orlando and Los Angeles. Sea World
is mainly targeting at five locations while Six Flags and Cedar Fair are operating parks located in
many populated areas across U.S., showing diversity in geographic strategies and stronger
competition between each other.
China and Dubai Potential Outlook
Attractive Asian and Middle-East tourism & entertainment market: Operators in U.S. are
expanding into international markets, especially Asia and Middle East, due to high growth potential
in the coming years. Specifically, booming tourism in China and Dubai offers attractive prospects
for amusement park industry.
(in '000 $) 2013 2014 2015
Theme
park
admissions
602,204 641,535 687,819
Share 56.4% 57.4% 57.1%
Theme park
food,
merchandise
and other
448,547 460,131 500,190
Share 42.0% 41.1% 41.5%
Accommo-
dations
revenue
17,000 16,877 16,796
Share 1.6% 1.5% 1.4%
Sponsorship,
licensing and
other fees
42,179 57,250 59,133
Share 3.8% 4.9% 4.7%
Revenue 1,109,930 1,175,793 1,263,938
Category Type Discount
Daily
Ticket Fright Fest 15%
Season
Pass
Regular
4+
Purchases
Each 18%
Membership
(Monthly) 72%
Gold
1-3
Purchases
Each 34%
Membership
(Monthly) 34%
Regular
1-3
Purchases
Each 59%
Membership
(Monthly) 59%
Source: Company report
Table 1. Historical Revenue by Segment
Source: Company report
Exhibit 1. SIX’s Parks Across U.S.
Source: Company report, US Census Bureau
Population Density Six Flags
22%
36%
25%
17%
under 18 18-44 45-64 over 65
Exhibit 2. 2020E U.S. Age Distribution
Source: US Census Bureau
Table 2. Discounts Portfolio of Six Flags
Valuation
We considered two standard valuation models to value SIX – Discounted Cash Flow (DCF) model
and comparable company multiple pricing, with one-year target prices at $63.17 using DCF model
and $57.22 using multiple pricing method. Given equal weights to value-based valuation and
market-based valuation, we arrived at our final target price of $60.19 (upside 11.70% to $53.90 as
of 10/26/2016).
DCF Valuation Given amusement park industry is currently in growth stage of its life cycle, we expect Six Flag’s
revenue to continue growth and applied the Three-Stage Growth Free Cash Flow model, which
considers its high growth prospects and long-term values. Our DCF model implies a one-year target
price of $63.17 per share in base case projection and $75.04 in premium case projection. (Exhibit 3)
In applying the three-stage growth model, we forecasted five-year pro forma statements and
assumed explicit growth in first stage (2016E-2020E), semi-explicit growth of 5.00% in second
stage (2021-2025), and terminal growth of 2.0% in third stage (from 2026). The following factors
are material when assessing company’s performance and calculating the DCF model.
Revenue
Per Six Flag’s business, its revenue is divided into four segments: Theme park admission, Theme
park merchandise and other, Accommodations revenue & Sponsorship, licensing and other fees.
Based on nature of business, we categorize first three segments revenue as direct operation revenue
and the fourth segment as indirect operation revenue, which is composed of domestic and
international sponsorship, licensing and other incomes.
Direct Operation Revenue: The direct operation revenue depends on total attendance and
adjusted revenue (revenue minus indirect operation revenue) per capita and is calculated as below:
In summary, we forecast total attendance to grow at 3.08% CAGR in 2016E-2020E, adjusted
revenue per capita to grow at 3.08% CAGR for premium group and at 1.20% CAGR for regular
group in 2016E-2020E. (Exhibit 4)
Indirect Operation Revenue: We forecast indirect operation revenue to grow at 4.8% annually
in 2016E-2020E as our base case projection. Besides, given that new parks will start operation in
2019E and 2010E, we developed a premium case projection by adding up 5.0% in 2019E and 6.0%
in 2010E of corresponding direct operation revenue.
Operating Expenses
Per improving management efficiency, we forecast all expenses to stay stable as fixed portion of
revenue, with operating margin at 64.0%, SG&A (selling, general & administration, excluding
stock-based compensation - SBC) at 14.0%, SBC at 5.0% and COGS (cost of goods sold) at 8.0%.
Also, we forecast depreciation rate to stay at 5.0% of total PPE (property, plant and equipment) and
amortization to stay in line with management’s forecast.
Tax Rate, Terminal Growth Rate & Weighted Average Cost of Capital
We assume tax rate to be 28.0% based on US Federal income rate of 35.0% and further adjustments.
Terminal growth rate is set as 2.0% using industry standards. Weighted average cost of capital
(WACC) is 7.11% using formula: WACC = 𝑤𝑒×𝑟𝑒 + 𝑤𝑑×𝑟𝑑×(1 − 𝑇) and 𝑤𝑒 = 𝑟𝑓 + 𝛽×(𝑟𝑀 − 𝑟𝑓).
(Table 3)
Multiple Valuation Besides DCF method, we used multiple analysis to calculate market-justified price range by
comparing SIX and its peers – public amusement park companies. To find the optimal-comparable
companies, we then filtered the list by identifying the ones that have the closest revenue and positive
earnings and finally arrived at four public companies for multiple valuation.
Considering valuation common practices and proximity to intrinsic value, we chose P/E (price to
earnings), EV/EBIT (enterprise value to earnings before interest and tax expense) and EV/EBITDA
(enterprise value to earnings before interest, tax depreciation and amortization expense) ratios for
valuation purpose. Applying the mean of the three ratios, we arrived at $67.03 (33.59x P/E), $69.72
(21.54x EV/EBIT) and $34.9 (10.23x EV/EBITDA), with the average of $57.22 as our one-year
target price. (Table 4)
Direct
Operation Revenue
=
Group attendance + Season pass & Membership attendance
× Adjusted revenue per capita
(Premium group)
Single-ticket attendance × Adjusted revenue per capita
(Regular group)
Table 3. WACC Computation
Risk free rate 1.85%
Beta 0.80
Equity risk premium 8.74%
Cost of equity 8.84%
Equity % 74.90%
Cost of debt 2.68%
Debt % 25.10%
Effective tax rate 27.37%
WACC 7.11%
Source: Bloomberg, Team estimates
Table 4. Multiple Valuation
Ratio Mean Median Price
P/E 33.59x 31.49x $ 67.03
EV/EBIT 21.54x 17.89x 69.72
EV/EBITDA 10.23x 10.49x 34.90
Target Price (Multiple) $ 57.22
Source: Bloomberg, Team estimates
1,296 1,378
1,901 2,204
4,549 5,274
0
2,500
5,000
7,500
10,000
Base Premium
Exhibit 3. Projected Firm Value by DCF
(in mn $)
Explicit stage Semi-explicit stage Terminal Value
Source: Team estimates
28,557
29,713
30,573
31,437
32,321
33,231
42
44
45
46
47
49
25,000
28,000
31,000
34,000
40
42
44
46
48
50
Exhibit 4. Projected Attendance
and Revenue Per Capita
Attendance
Revenue per capita - RHS (in $)
Source: Team estimates
Financial Analysis
Key Ratios 2015 2016E 2017E 2018E 2019E 2020E
Profitability
Net profit margin 15.26% 16.58% 16.89% 17.33% 17.61% 17.93% EBITDA margin 35.35% 36.75% 36.83% 37.09% 37.16% 37.22%
EBIT margin 26.85% 28.63% 28.77% 29.09% 29.21% 29.41%
ROE 155.46% 628.49% 431.95% 369.35% 324.43% 279.68% ROA 7.77% 9.26% 9.98% 10.79% 11.54% 12.36%
Liquidity
Current ratio 0.84 0.97 1.04 1.16 1.27 1.40
Quick ratio 0.72 0.71 0.72 0.74 0.75 0.75 Cash ratio 0.44 0.43 0.44 0.47 0.49 0.50
Efficiency
Cash conversion cycle 13.63 4.54 5.33 4.42 3.55 2.64 Cash turnover 12.67 12.80 12.61 11.16 10.59 9.78
Fixed asset turnover 1.05 1.15 1.23 1.31 1.41 1.51
Total asset turnover 0.51 0.56 0.59 0.62 0.66 0.69 CFO/EBIT 1.40 1.29 1.28 1.23 1.20 1.17
CFO/CapEx 4.15 4.11 4.11 3.96 3.91 3.84
Solvency
Long-term debt to assets 0.62 0.61 0.61 0.61 0.60 0.60
Debt ratio 0.81 0.80 0.79 0.79 0.78 0.77 Interest coverage 4.45 5.11 5.42 5.79 6.14 6.53 Source: Company report, Team estimates
Competitive Margins Indicate Strong Profitability
The robust margins are expected to stay stable in the future considering possible growth in revenue
and rising operating efficiency. During 2016E-2020E, we forecast EBIT margin to be at a range of
28.63% to 29.41%. (Exhibit 5)
Robust Cash Generating Ability and High Efficiency
We expect SIX to continually produce increasing positive Operating Cash Flows due to solid
performance. A strong indicator of the company’s favorable cash position is its ability to finance
most of its capital expenditures from internally generated funds, which is reflected by its favorable
CFO/CapEx ratios. Also, the cash conversion cycle of the company shows high efficiency. And we
anticipate decreasing cash conversion cycle in 2016E-2020E. (Exhibit 6)
Revolving Loan Provides Additional Support for Liquidity
The principle sources of liquidity of SIX are generated from operations, funds from borrowings and
existing cash in hand. Although cash decreased significantly due to stock repurchase activities, SIX entered the Amended and Restated Credit Facility in 2015, which promises to provide a 250 million
revolving loan. Based on historical and anticipated operating results, we believe the future operating
cash flow and the revolving loan will cover the liquidity needs of the company.
Stock Repurchase Plans Suggest Higher Intrinsic Value
SIX started several stock repurchase programs in 2012 and 2013, allowing the company to buy back
over 1,000 million common stocks in the following four years. This action indicates a higher
intrinsic value evaluated by the management of the company comparing with the current market
value, and therefore can be considered as a signal of an undervalued stock price in the market.
Investment Risks
Impact and likelihood of the following risks are presented in Exhibit 7.
Economic Risk (ER1): Worsening U.S., China and Middle East economy adversely affects SIX’s
revenue growth and may even lead to liquidity problems.
Environmental Risk (ER2): The second and third quarter take up 76% of total revenue,
indicating high sensitivity to weathers. In case of extreme weathers, SIX must shut down operation.
Safety Risk (SR): Lack of necessary safety control harms SIX’s reputation and causes injuries or
deaths, resulting in expensive litigations.
Equity Risk (ER3): Continuing stock repurchase in large amount leads to liquidity problems in
extreme cases and facilitates concerns about being taken private.
Cyber Risk (CR): Breach of private information discourages purchase of season pass and
memberships, leading to litigation costs and possible downturn of active pass base.
10%
20%
30%
40%
2015 2016E 2017E 2018E 2019E 2020E
Exhibit 5. Projected Stable Margin
Source: Team estimates
EBITDA Margin
EBIT Margin
Net Profit Margin
122,026
128,906
136,120
143,757
151,864
214,298
228,335
242,372
256,409
270,446
165,243
172,172
160,549
161,857
160,264
2016E
2017E
2018E
2019E
2020E
Exhibit 6. Cash Surplus from CFO
(in '000$)
CapEx Dividends Surplus
Source: Team estimates
Source: Team analysis
Exhibit 7. Risk Matrix
Appendix 1. SIX Statement of Financial Position
(in '000 dollars) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
ASSETS
Cash and cash equivalents 169,310 73,884 99,760 105,953 113,596 135,508 150,867 172,518
Accounts receivable 51,609 58,823 63,803 67,792 71,615 75,622 79,865 84,369
Inventories 22,172 21,099 21,535 23,321 24,635 26,014 27,474 29,023
Prepaid expenses and other current assets 39,006 44,705 42,879 47,349 46,742 48,411 51,117 55,919
Deferred income taxes 71,761 102,413 0 - - - - -
Total current assets 353,858 300,924 227,977 244,415 256,588 285,556 309,322 341,830
Debt issuance costs 23,821 19,062 5,386 5,386 5,386 5,386 5,386 5,386
Restricted-use investment securities 1,823 2,471 3,036 3,601 4,166 4,731 5,296 5,861
Deposits and other assets 4,268 4,750 7,211 5,714 6,196 6,678 7,160 7,642
Sub-sum of other assets 29,912 26,283 15,633 14,701 15,748 16,795 17,842 18,889
Property and equipment, at cost 1,716,975 1,797,617 1,862,764 1,955,902 2,053,697 2,156,382 2,264,201 2,377,411
Accumulated depreciation -485,292 -579,511 -664,610 -772,185 -885,138 -1,003,739 -1,128,270 -1,259,028
Total property and equipment 1,231,683 1,218,106 1,198,154 1,183,718 1,168,559 1,152,643 1,135,931 1,118,384
Goodwill 630,248 630,248 630,248 630,248 630,248 630,248 630,248 630,248
Intangible assets, net 362,113 359,358 356,428 353,822 351,337 348,901 346,471 345,429
Total assets 2,607,814 2,534,919 2,428,440 2,426,903 2,422,481 2,434,143 2,439,814 2,454,779
Current liabilities:
Accounts payable 24,464 19,315 25,570 27,117 28,646 30,854 32,585 35,097
Accrued compensation, payroll taxes and
benefits 29,277 37,463 46,583 35,000 35,000 35,000 35,000 35,000
Accrued insurance reserves 50,771 41,276 40,796 41,796 40,796 40,796 40,796 40,796
Accrued interest payable 19,598 19,542 19,555 19,377 17,796 17,712 16,159 16,082
Other accrued liabilities 25,988 36,176 34,714 25,000 25,000 25,000 25,000 25,000
Deferred income 60,443 71,598 97,334 94,909 93,099 90,747 87,851 84,369
Current portion of long-term debt 6,269 6,301 7,506 7,506 7,506 7,000 7,000 7,000
Total current liabilities 216,810 231,671 272,058 250,705 247,843 247,109 244,391 243,345
Long-term debt 1,394,334 1,389,215 1,498,022 1,490,516 1,483,010 1,476,010 1,469,010 1,462,010
Other long-term liabilities 39,934 65,396 58,150 67,073 62,286 61,992 58,760 58,480
Deferred income taxes 145,830 187,197 140,273 135,585 128,906 136,120 135,770 134,990
Total liabilities 1,796,908 1,873,479 1,968,503 1,943,879 1,922,046 1,921,231 1,907,932 1,898,825
Redeemable noncontrolling interests 437,569 437,545 435,721 435,721 435,721 435,721 435,721 435,721
Stockholders' equity:
Preferred stock, $1.00 par value - - - - - - - -
Common stock 2,371 2,323 2,289 2,419 2,549 2,679 2,809 2,939
Capital in excess of par value 842,488 983,317 1,041,710 1,099,710 1,149,137 1,187,895 1,228,515 1,267,485
Retained earnings (accumulated deficit) -438,825 -702,116 -953,225 -980,776 -1,005,181 -1,023,493 -1,036,695 -1,042,537
Accumulated other comprehensive loss
(net) -32,697 -59,629 -66,558 -74,049 -81,791 -89,891 -98,468 -107,654
Total Six Flag's SE 373,337 223,895 24,216 47,304 64,714 77,191 96,161 120,233
Noncontrolling interests - - - - - - - -
Total equity 373,337 223,895 24,216 47,304 64,714 77,191 96,161 120,233
Total liabilities and equity 2,607,814 2,534,919 2,428,440 2,426,903 2,422,481 2,434,143 2,439,814 2,454,779
Appendix 2. SIX Statement of Comprehensive Income
(in '000 dollars) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Theme park admissions 602,204 641,535 687,819 737,508 779,388 823,298 869,801 919,196
Theme park food, merchandise and other 448,547 460,131 500,190
536,958
567,449
599,419
633,276
669,239
Accommodations revenue 17,000 16,877 16,796
19,408
20,510
21,666
22,890
24,189
Sponsorship, licensing and other fees 42,179 57,250 59,133 61,971 64,946 68,063 71,330 74,754
International expansion contribution
- - - - - - 76,298 96,758
Revenue - Base 1,109,930 1,175,793 1,263,938 1,355,846 1,432,293 1,512,447 1,597,297 1,687,380
Revenue - Premium 1,109,930 1,175,793 1,263,938 1,355,846 1,432,293 1,512,447 1,673,596 1,784,137
Operating expenses 417,482 437,431 465,219 490,816 518,490 544,481 575,027 607,457
SG&A (involve stock-based
compensation), total 189,218 310,955 234,810 248,863 262,518 276,839 291,973 308,002
- Stock-based compensation 27,034 140,038 56,233 59,045 61,997 65,097 68,352 71,769
- Net SG&A 162,184 170,917 178,577 189,818 200,521 211,743 223,622 236,233
COGS 86,663 90,515 100,709 108,468 114,583 120,996 127,784 134,990
Depreciation 113,682 105,449 104,788
107,575
112,953
118,601
124,531
130,758
Amortization 14,393 2,658 2,623
2,606
2,485
2,436
2,430
1,042
Loss on disposal of assets 8,579 5,860 9,882
9,470
9,348
9,221
9,087
8,947
Equity in loss (income) of investee/
Gain on sale of investee
- (10,031) - - - - - -
Interest expense 75,044 73,057 76,205
76,000
76,000
76,000
76,000
76,000
Interest income (899) (468) (302) (300) (300) (300) (300) (300)
Other expense (income), net 1,234 356 223
200
200
200
200
200
Loss on debt extinguishment 789 - 6,557 - - - - -
Income before reorganization 203,745 160,011 263,224 312,148 336,015 363,973 390,565 420,284
Reorganization items, net (180) - - - - - - -
Income before tax and discontinued
operations 203,925 160,011 263,224 312,148 336,015 363,973 390,565 420,284
Income tax expense/benefit 47,601 46,522 70,369 87,402 94,084 101,912 109,358 117,679
Income before discontinued operations 156,324 113,489 192,855 224,747 241,931 262,060 281,207 302,604
(Loss) income from discontinued
operations 549 545 - - - - - -
Net income 156,873 114,034 192,855 224,747 241,931 262,060 281,207 302,604
Less: Net (income) loss attributable to noncontrolling
(38,321) (38,012) (38,165) (38,000) (38,000) (38,000) (38,000) (38,000)
Net income attributable to SIX 118,552 76,022 154,690 186,747 203,931 224,060 243,207 264,604
Foreign currency translation adjustment (1,341) (6,803) (8,195) (9,491) (10,742) (12,100) (13,577) (15,186)
Defined benefit retirement plan 17,427 (19,872) 1,769 2,000 3,000 4,000 5,000 6,000
Change in cash flow hedging 318 (257) (503) - - - - -
Comprehensive income/loss 173,277 87,102 185,926 217,256 234,188 253,961 272,630 293,418
Comprehensive loss contributes to SIX 134,956 49,090 147,761 179,256 196,188 215,961 234,630 255,418
EPS – basic (in $) 1.22 0.80 1.65 2.00 2.18 2.39 2.60 2.83
Cash dividends (in $) 1.82 1.93 2.14 2.29 2.44 2.59 2.74 2.89
Appendix 3. SIX Statement of Cash Flow
(in '000 dollars) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Cash flow from operations
Net income/loss 156,873 114,034 192,855 224,747 241,931 262,060 281,207 302,604
Adjustments before reorganization activities:
Depreciation and Amortization 128,075 108,107 107,411 110,181 115,438 121,037 126,961 131,800
Reorganization items, net (180) - - - - - - -
Stock-based compensation 27,034 140,038 56,233 59,045 61,997 65,097 68,352 71,769
Interest accretion on notes payable 1,252 1,221 856 1,200 1,200 1,200 1,200 1,200
Loss on debt extinguishment 789 - 6,557 - - - - -
Gain on discontinued operations - - - - - - - -
Amortization of debt issuance costs 4,285 4,748 4,518 4,518 4,518 5,237 4,518 4,518
Other, including loss on disposal of assets 10,320 1,672 17,278 9,470 9,348 9,221 9,087 8,947
Gain on sale of investees - (10,031) - - - - - -
Decrease (increase) in accounts receivable (22,146) (7,764) (6,072) (3,989) (3,822) (4,008) (4,243) (4,504)
(Increase) decrease in inventories, prepaid
expenses and other current assets (2,062) (5,744) 306 (6,255) (709) (3,047) (4,165) (6,352)
Decrease (increase) in deposits and other assets
473 (486) (2,465) 1,497 (482) (482) (482) (482)
Increase (decrease) in accounts payable,
deferred income, accrued liabilities and other long-term liabilities
12,147 13,293 41,775 42,147 43,147 25,178 24,344 28,416
(Decrease) increase in accrued interest payable 17,239 (56) 13 (178) (1,581) (84) (1,553) (77)
Deferred income tax (benefit) expense 34,915 33,291 54,496 59,186 58,428 57,632 56,797 44,735
Net CFO before reorganization 369,014 392,323 473,761 501,567 529,414 539,042 562,023 582,575
Net cash used in reorganization activities (332) - - - - - - -
Total CFO 368,682 392,323 473,761 501,567 529,414 539,042 562,023 582,575
Cash flow from investing activities
Additions to property and equipment (101,853) (108,660) (114,370) (91,149) (91,149) (84,149) (91,149) (91,149)
Property insurance recovery - 850 173 - - - - -
Purchase of identifiable intangible assets (75) (49) (29) - - - - -
Purchase of restricted-use investments (605) (648) (565) (565) (565) (565) (565) (565)
Proceeds from sale of DCP - 10,031 - - - - - -
Proceeds from sale of assets 230 148 5,123 1,500 2,000 2,000 2,000 2,000
Net CFI (102,303) (98,328) (109,668) (90,214) (89,714) (82,714) (89,714) (89,714)
Cash flow from financing activities
Repayment of borrowings (6,276) (6,308) (710,565) (7,506) (7,506) (7,506) (7,000) (7,000)
Proceeds from borrowings - - 834,250 - - - - -
Payment of debt issuance costs (2,660) - (11,916) - - - - -
Net proceeds from issuance of common stock 30,860 38,840 40,531 48,783 40,000 52,000 51,000 48,000
Stock repurchase (523,589) (195,353) (245,114) (189,639) (197,016) (197,537) (201,741) (199,263)
Payment of cash dividends (176,171) (184,300) (200,957) (214,298) (228,335) (242,372) (256,409) (270,446)
Purchase of HWP ownership interests (9,554) - - - - - - -
Purchase of redeemable noncontrolling interest (288) (19) (1,552) - - - - -
Noncontrolling interest distributions (37,452) (38,012) (38,165) (38,000) (38,000) (38,000) (38,000) (38,000)
Net CFF (725,130) (385,152) (333,488) (400,660) (430,857) (433,415) (452,150) (466,709)
Effect of exchange rate on cash (1,147) (4,269) (4,729) (4,500) (1,200) (1,000) (4,800) (4,500)
Increase/decrease in cash and cash equivalents (459,898) (95,426) 25,876 6,193 7,643 21,912 15,358 21,652
Beginning Cash 629,208 169,310 73,884 99,760 105,953 113,596 135,508 150,867
Ending Cash 169,310 73,884 99,760 105,953 113,596 135,508 150,867 172,518
Appendix 4. SIX DCF Assumptions & Computations
Assumptions - WACC
Variable Value Basis
Risk free rate 1.85% US generic government 10-year yield
Beta 0.80 Using SPX Index, 10/28/2014 - 10/28/2016
Equity risk premium 8.74% SPX Index 5-year annual growth
Cost of equity 8.84% Calculated using CAPM model
Equity % 74.90% Bloomberg
Cost of debt 2.68% Bloomberg
Debt % 25.10% Bloomberg
Effective tax rate 27.37% TTM effective tax rate
WACC 7.11% Team Calculation
DCF Result Base Case Premium Case
(in '000 $) Value Proportion Value Proportion
Explicit stage 1,295,647 16.73% 1,378,071 15.56%
Semi-explicit stage 1,900,567 24.54% 2,203,768 24.88%
Terminal Value 4,548,818 58.73% 5,274,499 59.56%
Core firm value 7,745,031 100.00% 8,856,338 100.00%
Add: Cash 99,760 99,760
Minus: Minority interest 435,721 435,721
Minus: Long-term debt 1,498,022 1,498,022
Equity Value 5,911,048 7,022,355
Shares outstanding 93,580 93,580
Share price $ 63.17 $ 75.04
Upside 17.21% 39.25%
Sensitivity Test
(in '000
dollars) Historical Stage Stage 1 - Explicit Growth
Stage 2 –
Semi-Explicit
Stage 3 –
Eternal
2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2025E 2026E EBIT 279,518 233,613 339,429 388,148 412,015 439,973 466,565 496,284
Effective Tax Rate
17.03% 19.91% 20.73% 22.52% 22.84% 23.16% 23.44% 23.71%
NOPLAT 231,917 187,091 269,060 300,747 317,931 338,060 357,207 378,604
Add:
Depreciation 113,682 105,449 104,788 107,575 112,953 118,601 124,531 130,758
Amortization 14,393 2,658 2,623 2,606 2,485 2,436 2,430 1,042
Minus:
CapEx 101,900 107,800 114,200 122,026 128,906 136,120 143,757 151,864
Change in
NWC 21,094 11,290 (839) 4,228 3,608 3,178 3,971 3,541
FCFF 236,998 176,108 263,110 284,673 300,854 319,799 336,440 354,999 372,749 453,078 9,041,666
One-year target price
(in USD)
WACC
6.11% 6.61% 7.11% 7.61% 8.11%
Terminal
Growth
1.00% 69.14 61.82 55.75 50.65 46.31
1.50% 75.25 66.62 59.59 53.79 48.90
2.00% 82.83 72.47 63.17 57.48 51.91
2.50% 92.42 79.75 69.80 61.90 55.45
3.00% 105.33 89.04 76.77 67.28 59.69
Appendix 5. Comparable Company Analysis
Company Ticker Country
Marekt
Cap
(mn
USD)
Profitability Multiples
Revenue EBITDA Net
Margin P/E EV/Revenue EV/EBITDA EV/EBIT
Walt Disney Company
DIS US 150,248 56,002 16,908 16.5% 16.09 3.03 10.02 11.71
SeaWorld
Entertainment Iinc.
SEAS US 1,260 1,356 287 1.5% 37.66 2.11 9.96 34.67
Cedar Fair,
L.P. FUN US 3,203 1,258 429 11.8% 19.62 3.76 11.01 15.70
Merlin
Entertainments
PLC
MERL UK 5,632 1,942 602 13.9% 25.33 3.63 11.73 16.10
Euro Disney
S.C.A. EDL FR 974 1,530 89 -9.9%
- 1.38 23.63
(15.73)
Village
Roadshow
Limited
VRL AU 620 756 125 1.5% 51.75 1.36 8.24 19.67
Six SIX US 4,961 1,298 409 9.14% 41.43 5.32 16.88 22.95
Source: Bloomberg, as of 10/26/2016
Appendix 6. Porter’s Five Forces Analysis
Threat of Substitutes - INSIGNIFICANT: Substitutes of roller coaster are rare, and any other entertainments that can provide thrilling
experience which makes visitors want to scream may end up in a few extreme sports. Some extreme sports don’t have safety measures
to make a guarantee for security of visitors. Some may be too expensive for people in middle income to afford. Therefore, the substitutes
for roller coasters are hard to find, and thus providing score 1.
Threat of New Entrants - INSIGNIFICANT: barriers to entry of the amusement parks industry are high, especially for entrants
interested in opening roller coaster theme parks. The industry has more than 98% of revenue shared by five major players, presenting
another strong obstacle for new entrants.
Existing Rivalries - MEDIUM: SIX accounts for 7.5% of total market share and ranks four among five. Even though the ranking shows
SIX has a disadvantageous position, SIX is a competitor for Cedar and all the others. SIX has operated 16 theme parks in grand area of
the United States. All of them are in places with large population density. Moreover, SIX revenue has grown stronger than Cedar Fair
and its over financial condition is healthy compared to its peers like Cedar and SeaWorld.
Power of Suppliers - MEDIUM: SIX needs to renovate its roller coaster construction every few years and it has partnerships with Coca
Cola and any other food & drink wholesalers to provide visitor things to eat. Since SIX needs to cooperate with them to provide food
and drinks consumers want, these contractors and partners have some bargaining power. However, the long-term relationships with
these partners may help ease the pricing power of suppliers a bit.
Power of Customers - LOW: SIX adopts pricing strategy on its season passes and memberships by using complex marketing analysis
on consumer data. Since consumers are only the price takers for these ticket packages offered by SIX and since there is asymmetric
information between consumers and SIX, the bargaining power of consumers is not strong enough to make an impact on SIX sales.
0
1
2
3
4
5Existing Rivalries
Power of Suppliers
Power of CustomersThreat of New Entrants
Threat of Substitues
Appendix 7. SWOT Analysis
Appendix 8. Amusement Parks Distributions by Company
STRENGTHS WEAKNESSES
Comparatively high market shares Comparatively low international
brand name awareness
Wide geographic reach in the US
Global expansion ability Dependence on general economic
conditions
Strong cash generating ability
Industry-leading Innovation Sensitive to bad or extreme
weathers
License agreement with Warner
Bros. and DC Comics OPPOTUNITIES SO WO
Prosperous tourism industry Utilize the investment ability to
international expansion
Cooperate with local well-known
property developers
Increasing personal consumption
Emerging markets in Asia and
Middle East
Sustain market shares in domestic
market
THREATS WT WT
High population penetration rate
in domestic market
Explore new rides and attractions
to attract visitors Increase international influence
Competitions from other
entertainment industries Cultivate customer loyalty
Appendix 9. SIX’s Park Description
# Name Location Area
(in acres) Themes
Designated Market
Area and Rank
Population coverage (in mn)
50 miles 100 miles
1 Six Flags America
(owned) Largo, MD 515 + 300 Theme + Water
Washington, D.C. (7) Baltimore (26)
8.3 13.9
2
Six Flags Discovery
Kingdom (owned)
Vallejo, CA 135
Theme + Marine
+ Land animal exhibits
San Francisco / Oakland
(6) Sacramento (20)
6.3 11.9
3 Six Flags Fiesta Texas
(owned)
San Antonio,
TX 220 Theme + Water
Houston (10) San Antonio (32)
Austin (39)
2.5 4.6
4
Six Flags Great Adventure
& Safari (owned)
Jackson, NJ 2200 + 456
Separately-gated Theme park +
Safari
+ Water park
New York City (1)
Philadelphia (4) 13.8 29.4
5
Six Flags Hurricane
Harbor (owned)
6 Six Flags Great America
(owned) Gurnee, IL 304 + 30 Theme + Water
Chicago (3) Milwaukee (35)
8.8 13.9
7 Six Flags St. Louis
(owned) Eureka, MO 323 + 40 Theme + Water St. Louis (21) 2.8 4
8 Six Flags Magic Mountain
(owned)
Valencia, CA
250 Separately-gated
Theme + Water Los Angeles (2) 10.4 18.7
9
Six Flags Hurricane
Harbor
(owned)
12
10 Six Flags Mexico
(occupied pursuant to a
permit agreement)
Mexico City,
Mexico 110 Theme N/A 24.5 33
11 Six Flags New England
(substantially all owned) Agawam, MA 262 Theme + Water
Boston (8)
Hartford / New Haven (30)
Providence (52)
Springfield (116)
3.4 16.5
12 Six Flags Over Georgia
(leasehold interest) Austell, GA 283 Theme + Water Atlanta (9)
5.7 8.8
13 Six Flags White Water
Atlanta
(owned)
Marietta, GA 69 Water Atlanta (9)
14 Six Flags Over Texas
(leasehold interest)
Arlington, TX
217 Separately-gated
Theme + Water Dallas/Fort Worth (5) 6.9 8.1
15
Six Flags Hurricane
Harbor
(owned)
47
16 La Ronde (owned)
Montreal, Canada
146 Theme N/A 4.4 6.1
17 The Great Escape and Splashwater Kingdom
(owned) Queensbury,
NY 345
Theme + Water
(200 room hotel
and 38,000 square foot
indoor
waterpark)
Albany (59) 1.1 3.1
18
Six Flags Great Escape
Lodge & Indoor Waterpark
(owned)
Appendix 10. U.S. Population Forecast from U.S. Census Bureau
192,200,000
192,400,000
192,600,000
192,800,000
193,000,000
193,200,000
164,000,000
164,500,000
165,000,000
165,500,000
166,000,000
166,500,000
2,015 2016E 2017E 2018E 2019E 2020E
US Population Forecast
Weighted Population Original Population (RHS)
Population Group Weight 2,015 2016E 2017E 2018E 2019E 2020E
Female population 10-14 0.50 10,093,446 10,196,000 10,278,000 10,342,000 10,381,000 10,383,000
Female population 15-19 0.70 10,066,517 10,038,000 10,093,000 10,205,000 10,328,000 10,429,000
Female population 20-24 0.90 11,266,559 11,209,000 11,018,000 10,756,000 10,531,000 10,406,000
Female population 25-29 1.00 10,711,383 10,857,000 11,087,000 11,343,000 11,527,000 11,581,000
Female population 30-34 1.00 10,893,282 11,000,000 10,991,000 10,924,000 10,897,000 10,965,000
Female population 35-39 1.00 9,770,693 9,918,000 10,197,000 10,542,000 10,850,000 11,055,000
Female population 40-44 0.90 10,381,899 10,304,000 10,134,000 9,937,000 9,821,000 9,846,000
Female population 45-49 0.70 10,222,507 10,144,000 10,188,000 10,297,000 10,379,000 10,376,000
Female population 50-54 0.50 11,532,467 11,314,000 10,990,000 10,628,000 10,325,000 10,142,000
Male population 10-14 0.70 10,526,401 10,616,000 10,691,000 10,753,000 10,793,000 10,797,000
Male population 15-19 0.90 10,631,931 10,559,000 10,574,000 10,654,000 10,752,000 10,836,000
Male population 20-24 1.00 11,996,587 11,915,000 11,679,000 11,362,000 11,081,000 10,909,000
Male population 25-29 1.00 11,254,853 11,445,000 11,710,000 11,987,000 12,178,000 12,223,000
Male population 30-34 1.00 11,114,717 11,257,000 11,298,000 11,289,000 11,317,000 11,432,000
Male population 35-39 1.00 9,932,894 10,090,000 10,361,000 10,694,000 10,998,000 11,219,000
Male population 40-44 1.00 10,390,339 10,310,000 10,162,000 10,003,000 9,920,000 9,964,000
Male population 45-49 0.90 10,378,298 10,283,000 10,279,000 10,327,000 10,357,000 10,330,000
Male population 50-54 0.70 11,387,743 11,207,000 10,938,000 10,634,000 10,376,000 10,210,000
Total Weighted Population 164,812,740 165,070,000 165,260,500 165,457,900 165,749,100 166,155,100
Total Population 192,552,516 192,662,000 192,668,000 192,677,000 192,811,000 193,103,000
Appendix 11. Management Team Profiles
Name Age Title
James Reid-Anderson 56 Chairman, President and Chief Executive Officer
John M. Duffey 55 Chief Financial Officer
Lance C. Balk 58 General Counsel
Walter S. Hawrylak 68 Senior Vice President, Administration
Michael S. Israel 49 Senior Vice President and Chief Information Officer
Tom Iven 57 Senior Vice President, U.S. Park Operations
Nancy A. Krejsa 57 Senior Vice President, Investor Relations and Corporate Communications
David McKillips 44 Senior Vice President, In-Park Services
John Odum 58 Senior Vice President, International Park Operations
Brett Petit 52 Senior Vice President, Marketing and Sales
Leonard A. Russ 42 Vice President and Chief Accounting Officer
Appendix 12. Dividend Discount Model Analysis
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Dividend 2.14 2.38 2.62 2.9 3.22 3.58 3.98 4.42 4.69 5.01 5.31 5.58 5.80 5.98 6.10 6.16
∆Dividend 0.24 0.24 0.28 0.32 0.36 0.4 0.44 0.48 0.52 0.55 0.59 0.62 0.64 0.66 0.67 0.68
Div. growth rate
17% 14% 13% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1%
PV of Div.
2.41 2.45 2.50 2.55 2.61 2.66 2.59 2.55 2.48 2.39 2.29 2.16 2.03 29.9
Assumption: Discount rate(Cost of equity)=8.84%; according to previous dividend policy in the last five years, we conclude that
growth rate of dividend will decrease by 1% marginal rate per year from 2016 16% to 2029 2%. At 2030, the terminal growth rate will
be 2% for infinity. Final price is $61.58.