Clubcorp Holdings Inc fka MYCC

[Enterprising Investor]

ClubCorp: Still Hitting It Straight Down the Fairway (6/27/15)

Clubcorp, operator of golf, country and professional clubs, is thriving with strategy focused on acquisitions and on sprucing up properties.

By David Englander

While It’s a relatively new public company, ClubCorp Holdings hasn’t disappointed its investors. Since its September 2013 initial public offering, its shares have shot up 70%. They are 31% higher than when this column wrote favorably about the company in spring 2014, far outpacing the 14% return for the Russell 2000 (“A Stock That Could Stay on the Leaderboard,” April 21).

At a recent $24, the stock (ticker: MYCC) still looks attractive.


ClubCorp owns and operates 160 golf and country clubs in the U.S., encompassing about 200 courses. The industry’s largest player, it has been rolling up clubs and refurbishing them. In the past year, its memberships have soared 22%, to 180,000, driving sales and earnings higher.

There’s plenty of mergers-and-acquisitions potential left. The U.S. golf market is highly fragmented, with about 4,000 clubs. Most of them are run by small operators, are not well-capitalized, and need renovations. In fact, refurbishing existing clubs presents a sizable opportunity, with ClubCorp management targeting 10% to 15% cash-on-cash returns there.

MKM Partners analyst Christopher Agnew estimates that earnings before interest, taxes, depreciation, and amortization could jump 20% by 2017, to nearly $280 million, from the $233 million expected this year. Management has set a $300 million Ebitda goal by 2018, not including new acquisitions.

Agnew values the shares at $30, on an enterprise value of 10 times his 2017 estimate, but he believes that, in two years, they could be worth as much as $40. The stock yields 2.2%.

ClubCorp came out of private-equity ownership. In 2006, KSL Capital Partners bought the company, which was founded in Dallas in 1957. KSL has been winding down its stake since the IPO, but still retains about a 50% interest. ClubCorp CEO Eric Affeldt, a former KSL principal, has held the job since the buyout.

THE CLUBS ARE IN 26 STATES, including Florida, Texas, and California. ClubCorp also operates 49 business clubs, which cater to professionals. Club members spend, on average, more than $5,000 per year, and the affluent clientele tends to stick around. Retention rates exceed 80%.

Member dues contribute to an attractive business model, with recurring revenue representing nearly 50% of the total. The remainder comes from food, drink, and golf-related sales. This year, earnings could reach $32 million, or 49 cents a share, on $1 billion in revenue. They could rise 32%, to 65 cents a share, in 2016.

Since the IPO, ClubCorp has been an aggressive acquirer, snapping up 63 golf and country clubs in 2014 and 2015. Last August, management struck its largest deal—the $265 million purchase of Atlanta-based Sequoia Golf, owner of 30 clubs.

Acquisitions can offer meaningful synergies, with roughly half related to cost savings from centralized procurement and back-office support. Remodeling clubs—what ClubCorp calls “reinventing”—boosts memberships. Updates tend to focus on non-golf areas, such as fitness centers, restaurants, and pools, to boost a club’s appeal to families. ClubCorp has refurbished 33 golf and country clubs, and 21 business clubs, and plans to complete 30 this year.

On ClubCorp’s April earnings call, CEO Affeldt noted the success of the remodeling of the Prestonwood Country Club in Texas, bought last year. Since the updates, membership has soared nearly 50% at its two sites, in Dallas and Plano, with 40% of new members under age 40.

The O.N.E. promotion is also driving sales. The program, which gives members discounts on dining and access to other clubs around the country, carries high margins and improves retention rates.

ClubCorp’s balance sheet is in good shape. With about $100 million in annual free cash flow, there’s plenty of flexibility for the company to continue its growth.

On the April call, Affeldt sounded upbeat about his company’s prospects. Given what he has accomplished since the IPO, there’s no reason to doubt that he can keep hitting it straight down the fairway.

http://online.barrons.com/articles/clubcorp-still-hitting-it-straight-down-the-fairway-1435372741