The Dreamworld stock trading at half its value
Henry Jennings recently sat down with Greg Jung, CEO of Coast Entertainment (ASX: CEH) – the Gold Coast operator best known for Dreamworld – to talk through a standout full-year result, the plan to unlock value from its Coomera land, and why the board believes the stock is trading well below what its assets are worth.
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An overview of the episode:
A recovery years in the making
Coast Entertainment's latest numbers caught the eye: two million guests through the gates, the highest attendance since FY16, revenue up nearly 21 per cent, theme park EBITDA more than doubling to $18.8 million, and $35 million in the bank with no debt.
Jung frames it as a long haul, not an overnight turnaround. He joined in May 2019, had eight months on the job, and then COVID knocked the business around. The pandemic doubled as an accelerant – it let the company simplify the business and retire tired attractions all at once rather than over several years. What's left is leaner and fully owned: Dreamworld and WhiteWater World at Coomera, surplus land, and SkyPoint in the Q1 tower at Surfers Paradise.
Loyalty and annual passes do the heavy lifting
As a discretionary-spending business, Coast has a front-row seat on the consumer, and Jung argues the current caution is episodic, not endemic – where GFC stimulus went on plasma TVs, today's would go on experiences and family travel. Most of the growth is coming locally, from the Gold Coast, Brisbane and Ipswich.
The strategic centre of gravity is loyalty. Jung calls the holy grail growing attendance without deploying much capital, and annual passes – the highest-value ticket – are how Coast squares it: the more often a passholder visits, the more likely they renew. It is far cheaper than chasing new customers, and a local who already holds a Dreamworld pass sharply lifts the odds their visiting friends and relatives come too.
The Coomera land value opportunity
Jung sees more organic room than the market assumes – Dreamworld drew 2.4 million in FY16 versus two million now, leaving at least 400,000 in attendance recovery still on the table. But the bigger prize is the land. A three-year effort has secured a state government rezoning splitting the Coomera site into four precincts, and because the park could handle two or three times its current crowds on the existing footprint, the rest is genuine surplus.
Coast sees three uses: a major residential opportunity on the fast-growing northern Gold Coast, hotel accommodation that feeds the parks, and complementary mixed-use entertainment. With no ambition to become a developer, options run from selling the land to vending it in alongside a partner. Coast has engaged Barrenjoey Advisory to work through it, with more news expected this half.
Building attractions the Disney way, for a tenth of the cost
Jung has visited Disney parks more than 20 times but takes his cues from regional operators – one ride he saw at Shanghai Disney, he notes, was worth twice Coast's entire market cap. His philosophy is less frequent but higher-quality investment, built on storytelling and theming: retired favourite Motor Coaster is being rebuilt to bare metal as Lost Mine Mayhem, and by developing its own theming Coast reckons it can match Disney quality for a fraction of the price.
The company has also walked away from American IP in favour of parochial Australian brands – ABC Kids, the Wiggles, and its own Kenny and Belinda Koala – ahead of Dreamworld's 50th anniversary in 2031, which Jung wants to run as a year-long celebration rather than a single day.
Why the board thinks the stock is cheap
Jung starts with the maths: independent valuations put intrinsic value north of a dollar a share against 54 cents today and a pro forma NTA of $1.08, for a stock that has already climbed from 40 cents. There is also roughly $50 million of deferred tax assets sitting off the balance sheet and only now being recognised.
Beyond the numbers, he points to guest-experience scores that have been the best on the Gold Coast for five years running – a leading indicator for revenue – plus the second growth leg from the land. And the board has put its money where its mouth is, buying back 20 per cent of the register because it felt the stock was so cheap.
Could private equity come calling?
With private equity hunting cheap Australian assets, Jung says he would agree with anyone who concluded Coast's are worth more – hence the conversations underway. But he notes theme parks carry a cash intensity that PE has historically found harder than other sectors. Could it happen? For sure. Whether private equity is a natural owner of this kind of asset, he says, is still to be decided.