Imperial Capital Upgrades ClubCorp Holdings (MYCC) to Outperform
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Imperial Capital upgraded ClubCorp Holdings (NYSE: MYCC) from In-Line to Outperform with a price target of $21.00 (from $14.00), on potential clarity of its capital allocation strategy and its attractiveness as a potential takeover target.
Analyst George Kelly commented, "We think there is value in MYCC’s club base and we believe management's capital allocation strategy may become clearer and more shareholder friendly following recent public pressure from shareholders."
Kelly notes that on 9/15/16, FrontFour Capital, a 3.4% owner, issued a press release in which it published a lengthy letter addressed to MYCC’s CEO Eric Affeldt. The letter calls for management to improve its messaging, disclosure, and capital allocation strategy, wanting more focus on debt reduction vs club acquisition. FrontFour also called for the Board of Directors to pursue strategic alternatives.
"We see potential for the letter to compel management and the board to re-focus ClubCorp’s strategy and more fully unlock the value of its assets, which include 30K owned acres and several trophy properties," he said. "Additionally, MYCC generates approximately $150mn in annual operating free cash, allowing for more aggressive share buybacks or debt pay-down."
The analyst also sees the company as a potential takeover target. "We see potential for MYCC to be the target of an acquirer at levels above the current trading range. The company generates strong operating cash flow and is nearing the end of a heavy acquisition and investment cycle. Since 2009, MYCC has invested approximately $430mn in capex and $395mn in acquisitions. We believe the spending cycle will fall in 2018 and approach more normal levels, returning to a MSD percent range of revenue. Private equity firms have historically been very active in the golf, leisure, and fitness spaces."
Shares of ClubCorp Holdings closed at $15.47 yesterday.
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