Cheap Animal Safari Park Operator
Parks! America, Inc
History & Background
Parks! America is an overlooked stock that trades over the counter. The company has a market cap of $10.5M. It’s a small company that operates two animal safari parks, one in Missouri and another one in Georgia. Customers can rent cars at the parks and buy animal food to give to the animals as they drive through the 200+ acres of land where animals roam around.
The company came to be in 2003 when it acquired the assets of Great Western Parks LLC. The acquisition was accounted for as a reverse merger, in which the Great Western Parks was considered the acquirer.
The Georgia parks’ drive-through, which opened in 1991, is located on 200 acres of a 500-acre plot of land, was purchased in 2005 for $4.7M. Revenue has almost doubled since 2007 and the pre-tax profit margin expanded by 30%. The Missouri park is on a 255-acre plot of land that is all being used. The park was acquired later on in 2008 for $2M and still runs at a loss.
Business
Together the parks did $5.9M in revenue in 2018, down from 2017 due to poorer weather conditions (check data from NCEI, a US Government Agency). 85% of those sales came from the park in Georgia. Based on revenue numbers and ticket prices, I estimate the parks entertained over ~230,000 people in 2018. A number that, according to my estimates, has grown at about 3% p.a. since 2008.
History & Background
Parks! America is an overlooked stock that trades over the counter. The company has a market cap of $10.5M. It’s a small company that operates two animal safari parks, one in Missouri and another one in Georgia. Customers can rent cars at the parks and buy animal food to give to the animals as they drive through the 200+ acres of land where animals roam around.
The company came to be in 2003 when it acquired the assets of Great Western Parks LLC. The acquisition was accounted for as a reverse merger, in which the Great Western Parks was considered the acquirer.
The Georgia parks’ drive-through, which opened in 1991, is located on 200 acres of a 500-acre plot of land, was purchased in 2005 for $4.7M. Revenue has almost doubled since 2007 and the pre-tax profit margin expanded by 30%. The Missouri park is on a 255-acre plot of land that is all being used. The park was acquired later on in 2008 for $2M and still runs at a loss.
Business
Together the parks did $5.9M in revenue in 2018, down from 2017 due to poorer weather conditions (check data from NCEI, a US Government Agency). 85% of those sales came from the park in Georgia. Based on revenue numbers and ticket prices, I estimate the parks entertained over ~230,000 people in 2018. A number that, according to my estimates, has grown at about 3% p.a. since 2008.
The company has around 3M in fixed operating expenses, including depreciation. So, if we take the lower ticket prices of Missouri at $18.95 each, then the company would have to sell 156,000 tickets to breakeven. 131,000 at Georgia ticket prices. The incremental margin after fixed costs are covered is very high, so it’s important to estimate what the company’s “tipping point” is. Over the last 11 years, the Georgia park sales accounted for ~80% of sales. Taking this into consideration, the average ticket price is $22.15. Meaning 140,000 tickets would need to be sold to cover fixed costs. I believe the company probably had 230,000 visitors in 2018, the company’s margin of safety is 64%.
So, you've got 230,000 visitors, $3M in fixed operating expenses and you need to sell 140,000 tickets. The annual report says the parks did $2.2M in pre-tax profit. That makes sense because if we do the difference between 230,000 and 140,000 and multiply by $22.15, we get around $2M.
But, that calculation wouldn't be very useful because one park does very well and the other doesn't. The Georgia park may look something like this: $5.1M in revenue and $4M in actual ticket sales, which translates to around 180,000 visitors. There's probably about $2M in operating expenses. So some 90,000 need to be sold to cover fixed expenses. The remaining revenue from the other 90,000 tickets dropped to the bottom line to the tune of $2M. Actual pre-tax profit was $2.4M. The difference probably results from the margin on renting the vans, selling animal food, restaurant and merchandise.
Over the last 8 years the Georgia park has done very well, with pre-tax profit growing 8-fold on a 2-fold increase in revenues. Company-wide EBIT per share grew 10-fold. Due to little variable costs and price increases, the profit margins expanded dramatically. Part of revenues are from schools and tours, which provide a visible revenue stream into the future.
The Missouri park, however, was acquired in 2008 by the previous management team and, according to the CEO, the park had been under-invested for several years. The company would be better off without this park, for which they paid $1.75M (excluding cash). After factoring what was spent on capital expenditures, management hasn’t recouped the cost of their investment. Management has spent at least $1.4M since the acquisition on capital expenditures. Recent efforts include improving concessions and acquiring a giraffe. The Missouri park is nothing like the Georgia park. It had revenue of $923k in 2018, 50% higher than 8 years ago. By looking at the ticket prices, I estimate ~40,000 visitors visited the place.
So, on a GAAP basis this park has done poorly, but on an “owner earnings” basis (pre-tax profit + D&A – capex) the park has done even worse as management has invested an averaged of $200,000 into the park every year for 8 years.
Competition
Management talks about how this is a “highly competitive” industry, but I don’t think the numbers show that. Let’s talk about potential competitors in Georgia, which is the company’s main asset.
Callaway Gardens, located 5 miles from the Georgia park, is mentioned in the annual report as a threat. Callaway Gardens is a 6,500-acre resort, founded in 1952, that brings ~750,000 visitors every year. It has trails for biking and walking, the world’s largest man-made white sand beach, a butterfly center with many different species of butterflies, and two golf courses. I think this has actually been the reason why the Georgia park was successful and the Missouri one wasn’t, despite Missouri having a larger population. The Callaway resorts attracts people to Pine Mountain, Georgia.
In May 2018, Great Wolf Resorts (over 450 suites), which includes an indoor waterpark, opened 12 miles from the company’s park. Daily tickets go for $75. Again, I think that like Callaway, this will be good for the park. However, we can still look at other amusement parks to get a feel for the impact a waterpark might have.
The closest waterparks are Rigby’s Water World (94 miles), Six Flags Over Georgia (77 miles) and Six Flags White Water (90 miles). The biggest park, by acres, is Six Flags Over Georgia at 290 acres. Over 12x bigger than Rigby’s Water World and 4x bigger than the other Six Flag’s park. These are obviously not perfect comparisons because of the distance - Six Flags over Georgia, the closest park, is a 1h10min drive).
The Georgia park has done quite well depsite the huge Six Flags park being an hour away. Rigby's opened in 2018, and if the Georgia park did well with the aforementioned Six Flags park it will surely do well with Rigby's - a 24 acre park and a 2h drive.
Great Wolf Resorts will have 11 acres of entertainment space, the biggest being the indoor water park which will be over 2 acres. This park is far smaller than all the ones I’ve mentioned above. Except for Rigby’s which opened in 2018, the two other parks have been open for at least 35 years. So, it’s likely Great Wolf Resorts will attract more visitors to Georgia, but it’s hard to tell how many. But I’d bet it’s going to be significantly less than Callaway Gardens. Nevertheless, it’s likely still a positive for the Georgia park.
What is it worth?
Adjusting for non-recurring expenses the company has traded between 4-8x EBIT. Just like when I looked at Straco, over-leveraged peers who haven’t grown EBIT as quickly trade at much high multiples.
In spite of the Missouri park, company-wide EBIT per share grew 5.6-fold over the last 8 years. The company should we worth at least 8x EBIT for the Georgia park plus the land for the Missouri park. The company’s track record in the Georgia park has been tainted by the losses and investments in the Missouri park. The Georgia park has produced between $2-3M in EBIT in the last 3 years, and there’s about $600,000 a year in corporate expenses. So, if I assume $2.5M in EBIT going forward less the corporate expenses we have $1.9M in EBIT. Assuming cash flows grow with inflation, the park is easily worth around $15M.
The Missouri park loses money, so we’ll just assume the only thing of value is the land. Comparable land sales point to a value of at least $5,000 an acre. There’s 255 acres. So that’s worth $1.2M.
So, both parks are worth almost $16M. There’s another $1.2M in net cash. The total equity value is $17.2M. This gives me a prices per share of $0.23 vs. the current price of $0.14.
At today’s prices, you get a company in which management owns over 50%. If I adjust the market cap for $1.2M in cash and the Missouri land, I’m getting a park that has grown EBIT 9-fold over the last years for less than 5x EBIT.
Another way to look at is: if the company continues to generate about $1.3M in operating income (Missouri park will hurt earnings), then after paying interest expense and taxes you are left with about $1.2M in cash. In 3 years time there will be $4.5M in cash. Or almost half the market cap.
- Market cap: 10,000,000
- 2022 Net Cash: 4,500,000
- 2022 Market Cap (adj. for net cash): 5,500,000
- Free Cash Flow: 1,200,000
- Price to 2022 FCF: 4.6x
I would say that despite the company being very dependent on Callaway Gardens, because both parks are in very rural places, I still think this is a decent business and deserves more than an 8x multiple. However, uncertainity about future capital allocation decisions worries me. Management has continously put money in Missouri where it has, in my view, been very poorly spent. Last year pre-tax profit was $1.4M, a simple closure of the Missouri park would take that pre-tax profit to $2.4M.
Other Events
James Elbaor, a shareholder who owns 5% of the outstanding stock through Marlton Wayne LLC has suggested, through letters to the board, that the company should, (1) return $1.5M to shareholder through a special dividend or, (2) do a modified dutch auction tender, and create a Special Committee of independent board members to explore all strategic alternatives (i.e. possibly sell the company).
Another large shareholder, Nicholas Parks, who owns 12% of the outstanding stock, issued a 13D saying he entered into discussions with a private equity firm so that possibly the PE firm would buy his stock.
Risks
- There’s the risk the company keeps ploughing money into the Missouri park that seems to haven no chance of success (as they have been for as long as they’ve acquired it). $1.4M (and counting) in cash that could’ve have gone to shareholders.
- Risk of another poor acquisition like the Missouri park.
- Company is incorporated in Nevada, which is always a red flag for a company that doesn’t do business in Nevada
- The PCAOB found Parks! America’s auditor, called Tama, Budaj & Raab, P.C., to have some “deficiencies” in their work
- “the auditor issued an opinion without satisfying its fundamental obligation to obtain reasonable assurance about whether the financial statements were free of material misstatement.”
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