Transition To OPERA Cloud And AI Investments Will Boost Future Efficiency

Key Takeaways

• Completion of digital transformation milestones and AI investments are expected to enhance efficiency, customer service, and net margins.
  
• Premiumization strategy and property asset developments offer revenue growth and improved margins through higher customer spending and real estate opportunities.
  
• External factors like strikes, adverse weather, and macroeconomic conditions challenge EVT's revenue, with inflationary pressures and cost increases impacting margins and future profitability.

Catalysts

Engages in the entertainment business in Australia, New Zealand, Singapore, and Germany.

• The completion of the cloud and digital transformation milestones, including the full transition to OPERA Cloud for hotels, is expected to enhance operational efficiency and customer service, potentially improving net margins.
  
• The lift in Net Promoter Scores and employee engagement suggests that EVT is focusing on improving customer and employee satisfaction. These improvements could lead to higher revenue and earnings as customer retention increases and operational efficiency improves.
  
• The ongoing investments in IT and leveraging AI for operational efficiencies are likely catalysts for reducing future costs, which can positively impact net margins over time.
  
• The company's premiumization strategy in Entertainment and Hotels suggests a focus on increasing average revenue per customer, which could lead to revenue growth and improved EBITDA margins.
  
• The development of major property assets, such as the George Street Sydney mixed-use development, presents potential revenue and earnings growth opportunities from both hospitality and real estate development prospects.

EVT Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EVT's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.4% today to 6.3% in 3 years time.
• Analysts expect earnings to reach A$88.0 million (and earnings per share of A$0.55) by about February 2028, up from A$4.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$103 million in earnings, and the most bearish expecting A$74.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.2x on those 2028 earnings, down from 391.1x today. This future PE is greater than the current PE for the AU Entertainment industry at 14.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.0%, as per the Simply Wall St company report.

EVT Future Earnings Per Share Growth

Risks

• The Hollywood strikes led to disruptions in film releases, affecting entertainment revenue, with some blockbusters delayed until future periods and a less favorable film mix impacting yield per admission. This directly impacts revenue and EBITDA margins in the entertainment segment.
  
• Thredbo experienced materially worse weather conditions, resulting in an 18.9% downturn in revenue. While they implemented a new business model to offset some challenges, unfavorable future weather could further affect revenue and EBITDA for this segment.
  
• The company's reported normalized EBITDA declined by $35.7 million, compounded by nonrecurring items like prior German Government subsidies and a noncash tax adjustment, impacting net earnings and highlighting potential vulnerability to similar adjustments in the future.
  
• Increased costs due to labor, energy, and insurance are significant headwinds that the company is attempting to mitigate through business transformation efforts. However, persistent inflationary pressures could continue to impact net margins if not adequately controlled.
  
• The adverse impact of macroeconomic conditions on discretionary spending and travel in regions such as New Zealand could lead to stagnation or a decline in hotel occupancy and room rates, impacting overall revenues and potentially slowing recovery in key markets.

Valuation

• The analysts have a consensus price target of A$13.103 for EVT based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$15.7, and the most bearish reporting a price target of just A$11.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.4 billion, earnings will come to A$88.0 million, and it would be trading on a PE ratio of 31.2x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of A$11.59, the analyst price target of A$13.1 is 11.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.