Consensus community valuation
Even if you assume all capex was for maintenance and not expansion, about $4.5 mil of FCF was generated, most in the second half. Post AASB 16 NPAT of $3.25mil was flat YOY.
You could look to managements pre AASB - 16 figures, I've made notes on what the adjustments made involve. The consensus on Strawman is that managements numbers are a bit rich. Some of these numbers won't match what's in VVA's financials (particularly note 19) due to a typo in their numbers..
$43.5 = Property Rental Payments (28.4+ int component from prop leases in note 6 (approx. $15.1 mil?)
$35.7 = Dep on Office ROU Asset . ROU Dep on Leased Equipment (circa $4mil) left in.
$14.6 = Int on ROU assets ($16.2) LESS int on equip leases of (approx. $1.6)
Ignoring the normalisations I think the adjustments aren't too aggressive, although it's worth noting that expenses relating to equipment financed by a finance lease are all included below the EBITDA line. The total cost of around $5.6 mil is about $2mil below the cash outflows relating to that leased equipment.
I'm going to say that around 10X FCF is a fair price. I think once capex rolls off a bit there is around $12 mil worth of FCF sitting underneath everything for this coming year.
In the middle of a deep dive on VVA's full year financials and I came across this, which I think might be a typo/drafting error. @UlladullaDave thoughts?
First below is from HY results, Second is from FY results.
I think the property lease repayments in the FY results (Note 19) have accidentally excluded the interest component.
The $28.37 mil figure is equal to the principal payments detailed 1 page earlier, also it makes no sense that lease principal payments haven't at least doubled from HY to FY given expansions that have happened this FY. I think this figure is meant to be $43.5mil, as per their Investor Pres adjustments which I'll post on later.
In their latest monthly update, Carlos Gil talks about a new position for the fund:
That, to me, sounds awfully like Viva Leisure. IPO in 2019, check. Revenue and EBITDA figures, check.
I've always been puzzled as to why the fundies like VVA so much. Perennial and Regal also have positions which they also appear to be building. Yes the growth has been impressive, but most of it has been through acquisitions, and these have failed to hit the bottom line to date, hence the use of bullshit EBITDA.
I don't quite share Munger's entire opinion on EBITDA. I think it can make sense for some businesses in some instances, but in this case I'm not sure it's any good at all as a metric. I haven't done the work here, but I suspect the stuff getting depreciated is the gym equipment, the improvements to the leased spaces to suit their specific needs, the financing costs.. It's hard to think these things will disappear in a near future.
Anyway, thought I would post in the case of someone being able to educate me if this indeed is a bargain at 4x EBITDA.
Another Acquisition and a capital raise. I get why it makes sense to go into new geographic markets via an aquisition, but the price they're paying is nearly above their cost of capital. They're raising at 3.5X EBITDA and acquiring at around 4x EBITDA (or 3x EBITDA post synergies). There's some waffle about how some of the consideration includes a capex reimbursement but it makes little difference to the attractiveness of the acquisition IMO.
If the acquisition means it becomes easier to role out Greenfield sites and the ROI is higher than it otherwise would have been, or that the geographical reach means member growth, then I can see the logic.
The problem VVA needs to solve is:
1) Convince the market it's worth a better valuation
2) Proving it can grow using FCF without diluting shareholders.
They've failed at both so far and I think the reason they've failed at 1 might be because they've failed at number 2.
I haven't posted any commentary on the HY results as I couldn't really pin down my thoughts exactly. Despite making no acquisitions, it was still hard to determine what the actual underlying FCF was.
In regards to the below, it seems ok, but here's the emerging problem I'm starting to see:
VVA have paid approx. 1.2x Rev and 3.5x EBITDA for this acquisition (EBITDA margin expectation is much higher than usual 20%) .
VVA currently trades at approx. 0.8x Rev and 3.7x EBITDA.
There's no public to private arbitrage at the moment.
Assuming a 35% EBITDA to FCF conversion ratio (as per company presentations), a 3.5x EBITDA multiple implies a FCF yield of 10%.
VVA currently pays just under 8% on its debt facilities.
If everything goes to plan, VVA generates an additional $100,000 in FCF on its $5 in additional debt. There may be some additional synergies down the line, but I wouldn't bank on it.
