Moelis Report: Buy IDZ (TP:$0.54)

Indoor Skydive Australia Group (IDZ) – Buy
Price: $0.380; Target Price: $0.54
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Maiden EBITDA Positive Result as Penrith Holds its Own

Company Update

IDZ recorded their maiden EBITDA positive result of $33k, as revenues from the Penrith centre increased 20% to $3.7m for the half.
The Penrith centre delivered operational EBITDA of ~$2m, representing an EBITDA margin of 55%. Average utilisation for the period was 66%, up from 64% in pcp. First timers percentage of flyers increased to 59%, from 53% in FY15.
Despite the delay in the opening of Gold Coast, IDZ’s maiden EBITDA positive result highlights the point of inflection that the business has entered on the back of its high margin centres. We estimate a cost impact from the Gold Coast of ~$0.5m before missed revenues.
The 20% revenue growth for Penrith is encouraging in our view, showing IDZ’s ability to drive interest beyond the initial opening period and providing an earnings base expectation for future centres. We believe this de-risks the long term investment thesis.
In addition, IDZ’s ability to increase the % of first timer flyers from 53% in FY15 to 59% provides some comfort around the ability to drive new business and potentially deliver a more sustainable earnings profile.
We have adjusted our earnings estimates to reflect 1H16 actuals as well as shift out the Perth opening to the end of CY16, impacting FY17 estimates.
Investment View
We retain our BUY rating and target price of $0.54. In our view the current valuation appears to not reflect the upside potential related to the operating leverage from the high margin centre rollout.
With the launch of Gold Coast now complete, we anticipate some earnings uplift in 2H16, with FY17 benefiting from a third centre and a full year contribution from the Gold Coast.

Kyle Twomey