CLPIF - Compagnie des Alpes: The World's Best Ski Resort Group And A Top Value Pick

Summary

• Compagnie des Alpes was one obvious victim of the COVID pandemic and its share price collapsed by more than 50%.
• Revenues recovered strongly due to reopenings and easing health measures, surpassing pre-pandemic levels.
• Owning first-class ski resorts and entertainment parks, the company has valuable assets and is in a strong position to profit from increasing leisure spending.
• Despite the positive outlook, the stock has not really recovered from the COVID shock and is still in bargain territory.
• Hence, I believe Compagnie des Alpes can be a top value pick for 2023.

1. Company overview

Compagnie des Alpes ( CLPIF ) is a ski resort operator in France and also owns several theme and family parks in Belgium, the Netherlands, Canada, Austria and Switzerland. Val d'Isère and Méribel are just two of many famous and first-class resorts for ski enthusiasts. All these locations were heavily impacted by COVID lockdowns and closures. 2021 was a very tough year because of difficult conditions to generate revenues. However, CdA has survived and the company seems to have a strong comeback since revenues for the fiscal year 2021/2022 surpassed pre-pandemic levels. The CEO said in an interview for the Annual Report that CdA:

"generated strong cash flow after investments. We were therefore able to significantly reduce our debt and ended the year with very low financial gearing. These positive results and our sound financial position are proof that the Group has bounced back after the crisis." (Universal registration document, p.3)

One main reason for its strong comeback is the high-quality offerings for ski tourists which was acknowledged by winning the World Ski Award in the category World's Best Ski Resort Group 2022. CdA prevailed over six other ski resort groups from the USA, Sweden and Japan. The locations of its resorts and a very high customer satisfaction are two excellent preconditions for a stellar future.

The acquisition of 85% of MMV, the second largest operator of hotels and club residences in the French Alps, in October 2022 is one step to improve customer experience which is one of the company's key assets.

The acquisition makes sense and it has also increased revenues in the first quarter after CdA bought MMV. The start of the new financial year was promising, especially when taking into account the current political and financial situation in Europe. Inflation and rising energy costs are also affecting CdA. However, the company states that:

"The Group did not suffer any direct impact from the Ukraine crisis – except for the interruption of contracts with Russian partners for non-material amounts of less than €100 thousand – and had no direct exposure through third parties, customers or suppliers located in Ukraine or in Russia. Furthermore, no financial flows with counterparties located in those countries were authorised, except for the humanitarian aid to which Compagnie des Alpes contributed. On the other hand, the indirect effects of the Ukraine crisis, such as the increase in the prices of energy, construction materials and raw materials, as well as the rise in interest rates, may have a direct impact on the Group’s financial performance. To date, we estimate that the rise in electricity costs has increased the weight of this cost item from 3% to more than 4% of the Group’s total costs over a 12-month period. The inflationary shock is driving consumers’ fears about their future purchasing power, which could have an impact on visitor numbers or spending per visitor and skier that is difficult to quantify. Overall, the Group’s activities were not affected by these trends in financial year 2021/2022." (Universal registration document, p.164)

The last statement is the most interesting one, as it indicates the financial strength of the company's customers on the one hand, and the shifting priorities of consumer spending on the other hand. CdA is aware of the fact that the appetite for leisure activities has not gone away and is even higher following the health crisis. Consequently, if no new protective measures against COVID are implemented and no external shock like a global war or new virus hits the travel industry, the company should strongly grow and have an extraordinary year in 2023.

2. Financial situation

CdA is a financially solid company with manageable debt and increasing free cash flow. Revenues in 2021/2022 climbed to €958 million (+15.6% vs. 2018/2019). If the first quarter trend continues, CdA will achieve full year revenues above €1.1 bn this year. Leisure park revenues grew faster than ski areas revenues which was another trend that persisted.

FY2022 EBITDA rose to €312 million and net income to €114 million. Free cash flow from operations stood at €182 million. Shareholders' equity climbed to €1.02 bn with an equity ratio of 44% (+5 pp. YoY) which shows that the company survived the pandemic without major financial damages and that it is on track now to steadily improve its balance sheet.

3. Valuation and peer group

The shares currently trade for €14.1 (as of 02/27/23) and with 50.44 million shares outstanding, total market cap amounts to €711 million. Hence, the stock trades for low multiples and a cheap valuation.

The company has decided to pay out €0.83 per share (=payout ratio of 36%) in March 2023, boosting the yield to 5.9 %. Before the pandemic, CdA paid between €0.28 and €0.5 while eliminating the dividend for the last two years. It is very likely that the company can increase the dividend next year. The multiples from the table refer to the 2021/2022 results. If we assume much better results this year, the multiples will be lower for 2023. Compared to its US- American peers, CdA has the most attractive multiples. All in all, the stock appears to be significantly undervalued.

In case of a long-term normalization of the travel and leisure sector, a P/E of 12 and a Mcap/EBITDA multiple of 5 would be a fair valuation for the stock in my opinion, which consequently has an upside potential of nearly 100% in a very conservative scenario.

4. Risks

Compagnie des Alpes faces at least four major risks to its business which can partly explain the low valuation. Firstly, another pandemic and new lockdown scenarios keep investors from investing in the sector. However, such scenarios are currently very unlikely as COVID for now has lost much of its initial terror and even cautious politicians probably have no plans to close public parks or ski resorts again.

Secondly, a significant expansion of the Ukrainian-Russian conflict to other countries in Europe or an intensification to a global conflict is hopefully not in sight, but there is no guarantee that excludes this worst-case scenario. Furthermore, it is very hard to calculate the impact of a worldwide conflict on Compagnie des Alpes.

Thirdly, the inflation which is largely a direct consequence of sanctions against Russia will probably be higher for the next few quarters. Energy and catering costs have already increased, but CdA seem to be able to offset higher costs by passing them on to the customers. This risk was already discussed in the second paragraph and the company assured that inflation has currently no severe impacts on consumer spending.

Finally, the biggest and a more long-term risk is global warming. With over 47% of the company's full year revenues generated by ski resorts, less snow in the future is a major threat to its winter operations. The good news is that many ski areas are above 1500m altitude. The slopes in La Plagne in Savoie are all between 2000 and 3000m altitude which guarantees snow every winter for now. The snow depth in La Plagne is currently between 10 and 180cm. Although nearly all ski areas of the group are still covered with snow in the winter, a significant rise in temperatures can interrupt ski operations or increase energy costs for snow cannons at least.

All in all, it appears CdA can cope with nearly all major risks because they are either short-term risks which the company cannot influence or they do not really affect consumer spending. The only big threat are increasing average temperatures which would lead to more unfavorable weather conditions for ski tourists.

5. Conclusion

Compagnie des Alpes is a very interesting company in the European leisure industry and has managed to grow long-term despite major challenges like the pandemic and high inflation. The company owns many valuable assets across Europe and the demand for its assets is rising again. As a consequence, CdA should be able to achieve record revenues, earnings and dividend payments in 2023. The stock is still lagging behind and its valuation is still in bargain territory. Hence, Compagnie des Alpes can be a top value pick for 2023.

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