It all made sense at the time. Intrawest Resorts Holdings Inc. filed for its initial public offering amidst the rollicking returns of 2013 stock market. The timing was such that the shares would debut in the middle of the ski season, with the buildup to the Winter Olympics providing a publicity boost to all things snowy and sporty. It seemed like a sure winner.
So it was disappointing, then, that Intrawest did the IPO equivalent of a face plant last week. The company’s underwriters hoped to get $15 (U.S.) to $17 per share, but had to settle for $12. On its debut day, it traded as low as $10.80, more than a third below the upper end of the initial range.
In cases such as these, it’s often interesting to ponder whether the company’s investment bankers goofed – or whether the market is getting it wrong. And while there are a fair number of good reasons why Intrawest underwhelmed, investors who have faith in an economic recovery – particularly for the folks who can afford lift tickets – might take a close look at the already out-of-favour shares.
This is a return to the public markets for Intrawest, which went private in 2006 in a leveraged buyout by Fortress Investment Group. The plan, at the time, was to develop a boatload of resort-related real estate along with running a number of ski resorts.
The subsequent financial crisis was problematic, particularly for a highly leveraged company, and one of the moves to restore order to the balance sheet was to sell off the wondrous Whistler Blackcomb resort, which now trades on the TSX as Whistler Blackcomb Holdings Inc.
Denver-based Intrawest is not without its charms; it owns Tremblant in Quebec; 50 per cent of Blue Mountain in Ontario; two Colorado properties, including Steamboat; and two resorts in the eastern United States. The company says its geographic diversity is a strength.
It has an “adventure” segment, contributing about 20 per cent of revenue, that counts heli-skiing company Canadian Mountain Holidays as its prime contributor. It also has a real estate segment, separate from the ski operations, with an appraised value of about $150-million.
It would be helpful for Intrawest to dazzle out of the chute in its first earnings release as a public company. However, it will not. The company’s prospectus includes a range of preliminary results for the quarter that ended Dec. 31, the beginning of this year’s ski season. It expects revenue to come in below the prior year’s quarter by as much as 4.5 per cent, and it expects a hefty loss in large part due to interest on its heavy debt load.
While Intrawest has significantly cut its borrowings in the months before the IPO, it still will carry close to $580-million in debt in its early public life, a figure that exceeds its $540-million market capitalization. (Most of the proceeds of the IPO went not to the company, but to Fortress Investment Group, as it sold the bulk of the shares in the offering.)
You get a sense of why these facts, dumped into the current market cauldron of economic uncertainty, contributed to a less-than-boffo offering for Intrawest. However, there’s reason to believe we’re near the end of Intrawest’s downward slope.
The recent quarter’s revenue declines came in the adventure and real estate segments, and likely are one-time items. The adventure segment’s “ancillary services,” like renting out its helicopters for firefighting, had a decline from fewer forest fires. The real estate segment had a quirk that inflated real estate commissions in 2012.
Revenue from the skiing operations, which represents almost two-thirds of the company’s business, is slated to grow somewhere between 3 per cent and 6 per cent in the December quarter. (Whistler Blackcomb reported a slight decline in revenue in the same period.) Intrawest’s skier visits will be up in the low double digits.
What if the global economy’s recovery story turns to recession again? The company is quick to note that “despite high unemployment and fragile economic conditions” in the past five years, the ski industry has increased its effective ticket prices at an annual rate of 2.7 per cent, easily exceeding the “core” inflation rate of 1.6 per cent.
It’s entirely possible that Intrawest just hit the one patch of ice in what could otherwise be a blissful powdery run.