Wall St: Buy ClubCorp Weakness, Same Old Short Story

Analyst Christopher Agnew of MKM Partners recommend investors buy the weakness in ClubCorp Holdings Inc MYCC whose shares fell more than 10 percent after a short thesis report from Kerrisdale Capital.

Nothing New

"We completely disagree with the fund's conclusions, and would buy weakness," Agnew wrote in a note.
"According to MYCC, the investor has not had any interaction with the company nor visited any of MYCC's properties nor spoken with any of its GMs," he said.

The analyst noted membership liability issue is nothing new and, "this liability was covered in detail during the IPO."

"MYCC is paying taxes on the member deposits as they are amortized through the income statement. If the membership deposits are escheatable, we believe the company will get a tax refund," Agnew elaborated.

Related Link: Death Of Golf As An Investment? Kerrisdale Capital Shorts ClubCorp, Sees 80% Downside

Commenting on the fund's concerns of weak ROIC and decline in golf markets, Agnew said, "MYCC is targeting $300mn of EBITDA by 2018 from $233mn in 2015. We do not believe that would be achievable if the company could not achieve its target 17% returns of EBITDA over cash invested."

"Rounds played at MYCC clubs have not declined in the last 5­10 years. Skiing is meant to be a leisure activity in decline but look at the visitation at Vail Resorts. MTN is taking market share by investing in better product. Finally, we believe MYCC's focus on the club and non­golf amenities leads to strong retention of families. Member dues represent ~50% of revenues."

Further, the analyst continued that it is not possible to compare the Club in 2005 to today. There has been too much turnover in clubs.

"What the company has acquired since 2010 means that this analysis is like comparing apples and oranges. In our view, it is highly misleading to claim that the same store clubs can be compared over this period," he added.

Commenting on margin expansion concerns of Kerrisdale Capital, the analyst noted, "There has at a divisional level, 100bps for GCC (in spite of a very tough year with 100­year storms) and 200bps and BSA. Group margins have not because of $7mn extra overheads from being public and SOX compliant."

"We believe there is nothing new in any of the bear cases, all of them are a rehash and in our view without merit. We note the one argument not mentioned is fear of weakness in the Texas market, but perhaps one has to actually visit that market, the company and its locations to realize it has Texas exposure."

Agnew has a Buy rating and $24 price target on Club Corp.