Compagnie des Alpes - Investing in Ski resorts, Amusement parks, Padel...
Moreover, Analysis of Trump's victory impact in the markets, 3Q24 Earnings season..
Hi there!
This week
The Week in the Markets: One pager with a concise summary of the markets plus the highlights of this historic week for the markers (macroeconomy, liquidity, commodities, Bitcoin, Earnings season…)
Compagnie del Alpes - French small cap which offers the opportunity of investing in 10 large ski areas in the Alps, 12 leisure parks in Belgium and France, and 5-a-side football & padel courts in France. It is trading at 4.5 EV/EBITDA but also has several associated risks. Today, we analyze in depth its business model, financials, risks, target price, and our conclusions about this interesting company that we discovered more than two years ago.
The impact of Trump’s victory in the market: Analysis of impact on different asset classes, sectors and industries
3Q24 Earnings (Universe of companies) : GOGO, Sanlorenzo, Excelerate Energy, Epsilon Energy,..
Portfolio Management: Including updates on our 3-stage monitor, comments on several companies, and our macro views, along with their respective movements in both equities and all asset portfolios
Alcoholic Beverages Industry - 3Q24 Earnings (Oeneo, Anora, Corticeira, Zignago…)
Data Center
Nota: Tienes toda la publicación en español en nuestra web
The Week in the Markets
Historical week in which markets have welcomed the presidential change in the United States and the new political agenda of the Republican administration with all times highs in the main indexes
The S&P 500 crossed the 6,000-point barrier for the first time in history, with the Mag7 stocks rising almost 12%, and Tesla up 30%—it's expected that Musk will join the new administration, which always helps the company avoid significant issues with new laws over the next four years. On the other hand, it’s worth highlighting the tremendous week for Small Caps, which rose almost 10%, as well as Bitcoin (surpassing $80’000 at the time this being sent), which hit all-time highs. In other words, the so-called “Trump Trade,” often mentioned, has reached its peak.
We also noted during the week that beyond the stock market euphoria, a sector rotation is evident, driven by market expectations that U.S. interest rates will stay higher for longer—beyond this week’s 25-basis-point cut, only 3 or 4 more are expected until the end of 2025. This shift negatively impacts sectors like utilities and real estate, while benefiting the financial sector. Additionally, the influence of Mag7 movements on each sector, such as Tesla on Consumer Discretionary, is obvious.
The big drama of the week has been in Europe, as the anticipated new tariff policy significantly harms countries with a positive trade balance with the United States, like Europe, specifically Germany. This means greater export challenges for the already struggling European economy, which is bad for businesses. The market also assumes that lower rates will be necessary, further widening the policy divergence between the Fed and the ECB, which is unfavorable for the euro (this has hit markets with a higher financial sector weighting, like Spain and Italy, particularly hard). Similarly, the British pound has become a "safe haven," as the UK’s economy is more service-oriented.
Sharp declines in the VIX post-election—great timing in selling VIX calls last week—reflect greater certainty about the coming months, as well as declines in gold and silver, with investors rotating into other assets with higher immediate returns.
We believe this is one of those pivotal weeks that defines the investment strategy of any Portfolio Manager in the short and medium term, which is why we have made an effort to publish a detailed analysis of the various sectoral and asset impacts that we foresee due to Trump’s election as the new U.S. president.
Highlights of the week
US Elections
A resounding victory for Trump, who conquered both the White House and the Senate. This pushed most of the main indices to all-time highs. Beyond that, we think that this Trump victory was especially important for short- and medium-term portfolio positioning, as we have been seeing a marked asset rotation since Wednesday.
So far, the main winners are the U.S. indices, Bitcoin, the dollar, and sectors that benefit from interest rates remaining high for a longer period (such as Financials). On the other hand, countries with a larger trade balance with the United States are negatively affected by the threat of tariffs, and since Germany is among them (along with others like China or Mexico), the euro has weakened further against the dollar. Everything indicates that the FED and the ECB will proceed at different speeds from now on.
We have written a specific article analyzing the impact on other segments, and it is available on our website.
Interest Rates
The Federal Reserve unanimously decided to lower interest rates by 25 basis points, placing them within the 4.50%-4.75% range. The market did not react, as it was anticipated by more than 99%. However, if we must highlight something, it is that the FED issued a statement almost identical to the last one, but removed the line "the Committee has greater confidence that inflation is moving sustainably towards 2 percent," implying a slightly hawkish tone due to the removal of the phrase "greater confidence."
Europe
Germany faces further turmoil as Chancellor Olaf Scholz's government collapses after he dismissed Finance Minister Christian Lindner over policy disagreements. Scholz has called for a vote of confidence, while opposition and business leaders push for a snap election to restore stability.
UK
The Bank of England reduced the key Bank Rate for the second time this year, by a quarter-point to 4.75%, as inflation continues to slow down.
Some interesting Data about markets this week & YTD
Huge week for Tesla, Elon Musk's company, which practically became a binary bet in the elections. With Trump, Musk will likely be involved in the government and will very likely benefit (or at least not be penalized) by potential new regulations in his sector, which is heavily exposed to government decisions. Up 30%.
Earning Season
Fantastic week in general, practically for all the companies we follow (and very bad for two of the companies we had identified as such, one of them, STKS). Although without a doubt, the protagonist of the week has been GOGO, which appreciated almost 40% (equity, calls +180%) and for which we published the investment thesis with imminent catalysts 10 days ago.
Both for GOGO and the rest of the companies that have reported, we are publishing the analyses both in the Portfolio Management section and individually on the website.
Next week, Golar LNG, Italmobiliare, Arcos Dorados, One Water Marine, Cava, and Tamburi Investment Partners from our universe will report. We will cover all of them (earnings analysis, financial model update, and our opinion on them
Compagnie del Alpes
Compagnie Des Alpes (CDA) stands as a major player in the European leisure industry, attracting more than 26 million visitors annually to its 22 managed sites: 10 large ski areas in the Alps, and 12 leisure parks, five and four of them in France and Belgium, respectively. We have to add to this figures, the 3.75 million players that visit their 5-a-side football and padel courts to the recently acquired subsidiary.
Map of main business facilities. Red: Leisure parks; Blue: Ski Areas
Positioned in high-altitude areas in the Alps, CDA operates in some of the best ski areas in Europe. With great concessions and prime real estate in the French Alps, CDA enjoys a unique advantage: limited competition, which allows CDA to retain a loyal customer base and modestly increase prices each year. Their biggest business line is their theme parks, with some of them among the most visited in the EMEA region, such as Futuroscope or Parc Asterix. Their privileged locations in all divisions has enabled CDA to outperform its competitors and generate best-in-class EBITDA margins. Particularly, CDA is achieving close to 30% EBITDA margin in both Ski Areas and Leisure Parks segments.
CDA is immersed in a period of big capital expenditure, around €270 million each year in their ski areas and leisure parks, with the aim of making their facilities more attractive and increasing their visitorcapacity. Moreover, the company has made a recent acquisition that will suppose a new business line which is expected to have tremendous growth in the following decade: 5-a-side football and padel courts.
CDA has recently released the preliminary FY 23/24 (ending September 30), reaching €1.24B in sales and an estimated EBITDA of c. €350 million*- an increase of 10% and 15% over the previous fiscal year. With a market capitalization below €790 million and an estimated net debt (excluding IFRS 16) at around 2x EBITDA, CDA is trading at 4.5 times EV/EBITDA*. Moreover, we estimate a dividend yield of +6.5%. We believe the assets they operate, the current valuation, and its multiple growth drivers deserve a detailed analysis. *€350 million EBITDA, which we estimate +€315 million adjusting for IFRS 16. And a net debt above 640 million, resulting in an EV/EBITDA of 4.5 times.
CDA’s 3 Business Units
The group operations and reporting are divided into 3 different business lines: Ski Areas, Amusement Parks (with the 5-a-side football and padel reported within this business line), and Distribution & Hospitality. The group started his history wiith the Ski Areas business which has a very marked seasonality pattern, which has been reduced gradually thanks to the introduction of complementary business lines detailed in today’s article:
Ski Areas and Outdoor Activities:
Under the French Mountain Act, CDA operates ski areas via concessions from local authorities. CDA is responsible for the site management and for making the necessary investments in infrastructure (ski lifts, ski run development, artificial snow, etc) and in return, CDA receives the proceeds from the sale of lift passes, based on approved pricing scales. This arrangement includes indemnity protection, where the municipality would compensate CDA for the loss of earnings and past investments if a concession were revoked, more detail on the risk section.
As previously indicated, CDA operates solely in France, which is the biggest market in Europe, almost all the ski areas in the country (83%) are in the Alps. CDA sites are all high altitude (above 1,800 meters) which mitigates the snow conditions risks. Thus, the advantage and the moat of the business is clear, ski areas are irreplaceable and there will not be new ones which limits the entrance of competitors, this is even more pronounced in the best areas which of course are very correlated to the altitude.
Despite being a national market slightly decreasing in volume, around 0.7% yearly in the last decade, CDA has achieved a satisfying increase in volume, due to the best location and their good maintenance. Despite it, the French market has a solid and moderate variation in skier-days across the years as shown by the blue line in the first graph below. French nationals suppose around 65% of the visitors in French ski areas and 25% of the French nationals practice the ski at least once a year. So, CDA clients are in majority recurrent year over year.
The second graph shows how the average spending per skier-days has increased yearly 3.5% in nominal terms and 1.75% in real terms. The market structure is clear to us: there is a limited offer which cannot grow and a robust demand that is not very sensitive to prices, then the price tendency is obvious, to grow above inflation. To put in perspective the French prices, the French forfeit is cheaper than the Swiss or Austria, 17% and 11%, respectively.
If we focus on CDA, the average price of the skier-day is €39.1 (in 2023) for CDA vs €34.7 for the French market, with a much more aggressive increase in prices of CDA, profiting for the above-average installations.
One of the first concerns when analyzing the company is whether there will be the needed snow conditions to ski for the next years. And although, it is impossible to be completely accurate in the future, we can take a look at the snowfall days and conditions for some of the most important areas for CDA during the last 10 years and we observe that the conditions have remained quite stable. or at least not with a linear pattern. The graphs below are just two examples, but the rest of areas show similar patterns.
To reduce the seasonality and to profit from other business opportunities that the mountain can offer without depending on the snow conditions, the firm is expanding its offer of other outdoor activities through the subsidiary Evolution 2 such as hiking, mountain biking or Tyrolean traversing.
Pure Ski Players Peers
There are two (almost) pure ski-players listed in the public market, one in Sweden and the other in the US. Although both peers have slightly different business models than CDA, we will compare only the Ski Areas, what is surprising to us is the divergence in the multiples that the market assign to Vail Resorts and Skistar, and the ones for CDA.