By Andrew Main

You know a company’s on the ropes when it posts a sharp drop in revenue and the share price goes up, as happened yesterday with Ardent Leisure.

The management announced that the February 2017 revenue total for the theme parks division was $4.4 million, down 35% on the previous February’s figure of $6.78 million.

That was actually no surprise after last October’s horrible accident at Dreamworld’s Thunder River Rapids ride, which took the lives of four visitors and caused the closure of the park until December 10.

The stock, formerly known as the Macquarie Leisure Trust, picked up 6 cents to $1.62 because, as the company announcement revealed, things were less bad in February than they were in January, which in turn had numbers that were less bad than December.

Specifically, December visitor numbers were down 63% on the previous December - in line with revenue being down by about the same amount - whereas January visitor numbers were down by 44% versus January 2016.

The worry in January had been that revenue actually dropped off by 50.4%, a bigger drop than the turnstile numbers, most likely because of people paying reduced entry prices and getting concessions because of previous cancellations. The prices will be back at higher levels from April.

February, meanwhile, was a comparative gusher with revenue and visitor numbers getting back into equilibrium with each other, with visitor numbers a mere 33.6% below the numbers for February 2016, close to the revenue dropoff of 35% for the equivalent period.

The conclusion the managers would love you to take away is that the pain is fading slightly, which is what does generally happen after disasters and/or scandals. Business goes on because it has to. People still want entertainment and employees still need jobs. The world can’t just stand still.

It takes a hardheaded approach but if you were a parent looking at taking your kids to Dreamworld now, you’d know to put aside the reputational damage that the company has suffered and consider instead that every safety issue has now been gone over with a magnifying glass.  

The affected ride has been closed and it’s human (and corporate) nature to make absolutely sure nothing like that can happen again. This is a cynical thought but also, you won’t have to wait so long to get on the rides.

That gradual recovery story goes with the global picture relating to man-made disasters.

Should you now be prepared to walk along the Promenade des Anglais in Nice, where the truck mowed so many people down in July last year, you’ll see a lot more concrete barricades and heavily armed police and while it would be foolish to rule out another terrorist atrocity there, you will be more safe there than almost anywhere else.

The VW diesel scandal is another (much less scary) example of what happens after bad news.

Latest reports indicate that VW sales in Australia are getting back up pretty much to where they were before the emissions cheating scandal broke in October 2015, despite the recall to recalibrate the 2 litre diesel cars’ computers.

The reason is that while it was a giant scandal in the US where the cars were sold on the basis of very low emissions, they were sold in Australia on simple fuel economy, which remains good.

So what does all this mean for Ardent Leisure and CEO Deborah Thomas? 

It’s a bombed out stock that merits closer examination.

As she told reporters at results time on February 23, “the trend in visitation is obviously in the right direction”.

The decks were cleared to some extent on that day when the company announced a half-year loss of $49 million after writing down Dreamworld’s value by more than $90 million. The previous equivalent half saw a profit of $22.7 million.

The shares dropped more than 20% on the news to $1.71, and they are now below even that level.

Clearly Ms Thomas is still rowing against the wind.

The brokers are yet to be convinced that the worst is over, not least because the group’s Main Event operation in the US has also been an underperformer.

Of the seven brokers canvassed by FNArena post the result only one, Credit Suisse, retained an “outperform” on it while the others were either neutral or suggesting a sell. The pessimist was Citi, which now has a 12-month target of $1.55 on the stock. That’s actually seven cents below yesterday’s close of $1.62.

The big worry seems to have been the deterioration in like-for-like sales at Texas-focussed Main Event, which the less positive analysts believe won’t turn around any time soon.

Even the stock’s champion, Credit Suisse, has lowered its 12-month target price from $2.80 to $2.25.

On the more positive side, Credit Suisse believes that where goes the Texas economy, there also should go Main Event, and Texas has been strong over time. “Texas retail sales have been strong over the last four months and this keeps the broker’s outperform rating in place”, says FNArena.

The consensus forecasts averaged among the brokers suggest the stock’s going to deliver a skinny 2.4 cents a share EPS for this current 2016-7 year, rising in 2017-8 to 6.7 cents. The current share price represents a PE for this current year of 68 times, easing back next year to a less demanding 24.2 times.

The dividend’s not that dazzling, either, being expected to halve this year from 12.5 cents last year to 5.9 cents this year, to climb modestly next year to 6.4 cents. 

So overall, it’s one for investors who may well be tempted to pick up a few on the back foot while so many other big name stocks in Australia are looking expensive. All bad news fades eventually, but it will take a while.