Does Ardent's growth story make it ripe for takeover..?

There's nothing investors' like better than a growth story, and when owner/operator of leisure and entertainment assets, Ardent Leisure Group (ASX: AAD) backed up its impressive first half result – including a 20% increase in net profit to $22.6 million – with exciting expansion plans that could deliver bumper earnings growth in the next few years, market enthusiasm saw the stock rally by around 10% to $2.17.

Formerly the Macquarie Leisure Trust, Ardent Leisure is also the owner and operator of a diverse portfolio of well-known brands, including Goodlife Health Clubs, AMF, Kingpin Bowling, Dreamworld, WhiteWater World and SkyPoint.

Much of the company's outstanding result can be attributed to the expansion in its US-based family entertainment Main Event division – with 48% year-over-year A$ revenue growth during the first half of its fiscal year – which means Main Event now accounts for almost a third of the company's overall revenue.

Equally encouraging, CEO Deborah Thomas is looking for further opportunities to accelerate the Main Event division roll‐out. In addition to leveraging existing partnerships with leading global and local entertainment brands, Thomas plans to use the proceeds of its d'Albora Marinas sell-down – comprising seven high-profile marinas across Victoria and NSW – to accelerate the number of its Main Event centres from 21 to 28 by June 2016, and to 38 locations across 12 states by 2017.

There are equally exciting expansion plans for other parts of Ardent's business with some of the proceeds from the d'Albora Marinas sell-down to be used to transition its current AMF and Kingpin bowing centres into multi-attraction entertainment venues, following the success of this new format in Darwin.

In addition to the further development of its Dreamworld venue to capture the expected rise in tourist numbers on the Gold Coast, Ardent is planning a strategic review of the options for the Health Clubs business, along with a continued conversion to 24/7 operation of venues.

While Ardent's EBITDA margin did slip slightly to 36 .3% from 37.2% at half year, the group's theme park division recorded total revenues of $58.4 million for the half year up from $54.8 million in the previous corresponding period, with attendance up 13%.

Unsurprisingly, this performance has attracted the attention of potential suitors interested in making a takeover bid for the $1 billion business.What' attracting numerous private equity groups to Ardent is enduring appeal of the Main Event entertainment concept, with all the company's centres developed since 2007 on-track to deliver an average annual EBITDA [earnings before interest, tax, depreciation and amortisation] return on investment of over 35%.There's a prevailing view that the sale of the d'Albora Marinas, only paves the way for further breakout of the business, with US-based Cerberus Capital Management or US-based Goode Partners – which also owns the Bowlmor AMF portfolio – potential suitors for the rest of the operation.

It's also understood that Mark Carnegie's firm M.H. Carnegie & Co is preparing its own search for an equity partner willing to team up on a bid.  

Beyond potential suitors to take the company over, Ardent has also attracted some substantial buyers in recent months including Ausbil Investment Management, Bennelong Funds Management and Melbourne's JCP Investment Partners. 

With two new Main Event centres having opened towards the end of the first half and another five centres scheduled to open within short order,View all announcements  the group's overall full year performance will be weighted to the second half.

While the stock is trading at a 46% premium to its intrinsic value, it still looks attractively priced against its 12 month high of $12.78 early October 2015. Earnings per share growth (EPS) has been poor over the last five years, but is forecast to grow at an exceptional rate from $0.8 in 2015 to $0.16 by 2018; while return on equity (ROE) is expected to grow from 6.50% in 2015 to 11.96% by 2018.

Admittedly, any competitive bid, for what appears to be a much sought after business, will put upward pressure on the price, investors should buy the stock on fundamentals.

Based on price targets of $2.57 there's still plenty of upside here, and much of the company's new growth agenda has yet to find its way to the price, with the stock likely to be re-rated following the complete sell-down of its d'Albora Marina assets.