For Whistler IPO, what happens if it doesn't snow?

The preliminary prospectus for the initial public offering of Whistler Blackcomb Holdings Inc. offers plenty to regale the ski enthusiast cum investor. But what it doesn't much talk of, strangely enough, is the weather, particularly climate change.

There are only two references to the topic in the documents filed by the famed ski resort and they both gloss over the subject, although the issuer does acknowledge that a warming trend could lead to "material" consequences.

Is it really a question of "could" though? Not according to scientists. Daniel Scott, a University of Waterloo professor of environmental studies, published a substantial report in 2006 on the effects of global warming on tourism. The upshot of his research is that Canada's climate appears to be warming up. The average annual temperature was 1.1 C higher than in the 1940s. That may not sound like much but when it comes to snow, it's an important change.

And the pace of warming appears to be accelerating. Six of the 10 warmest years on record occurred between 1995 and the date of Prof. Scott's initial report. The winter of 2005-06 was almost 4 C warmer than the long-term average. His report, leaning on broadly accepted science, also said temperatures would keep rising slowly over the century.

Prof. Scott, who also consults for investors in resort projects, expanded on his findings when we spoke. Nothing has changed in the past four years to challenge the report's conclusion, he told me. He believes several resorts, especially those at lower altitudes, are on the verge of feeling the effects of warmer winters. He also emphasized that while the climate is warming, it's also becoming more variable, with extremes at both ends becoming more common.

Prof. Scott hasn't studied the West Coast in detail, but based on what he does know he says Whistler's high elevations should, in the short to medium term at least, help offset a lack of snow at lower levels closer to the resort village.

The good news is that Whistler, faced with a shortage, can make snow at night, or move it down the mountain if it's available. The bad news is that making or moving snow is expensive so either would have a material impact on results.

The bankers and Whistler's New York hedge fund owner can't comment on this issue during the IPO, but are apparently going to tempt investors to buy shares based on a juicy dividend yield. That's wise because Whistler revenues aren't growing, although earnings before interest, taxes, depreciation and amortization (EBITDA) are up, thanks largely to big staff cuts.

You might be tempted to say that warming trends will unfold over a couple of decades, giving you plenty of time to enjoy your dividends before getting out. But that assumes you'll get out before the madding crowd figures out that the snows of yesteryear are disappearing.

Furthermore, remember that the variability of weather is going up, so the resort's results will probably be volatile, along with the stock price.

The issuers have yet to announce how many shares will be sold or how they will be priced. Let's do some math, though. The prospectus suggests that the company can pay dividends of $37-million a year. That seems high to me because it leans on the EBITDA for the latest 12-month period, and that figure happens to be a lot higher than the three-year average.

But leaving that aside, a simple valuation method is to take that figure and divide it by a dividend yield you think is appropriate for an asset that is slowly depleting, with profitability that is increasingly variable. Divide that by the number of shares Whistler is selling and there's your price.

Whatever yield you settle on, factor in warmer weather because if the climate-warming science is right, you might not be buying a business with a long-term future - unless grass skiing really takes off.