Put me on a mountain bike and I can enjoy the ride, but on skis my basic technique is still an elaborate use of the snowplough method to slow down and avoid wipeouts. Nevertheless, this hasn’t held me back from making the 90-minute drive from my home in Vancouver to one of the most stunningly beautiful places on earth: a small town with the name of Whistler.

Whistler is well known for the ski resort that hosted a number of events for the 2010 Winter Olympics, which attracted 3.5 billion viewers worldwide. What is perhaps less well known is that the ski resort is also a publicly listed company under the name of Whistler Blackcomb Holdings (TSX: WB).

This entity holds a 75% interest in two partnerships that own the assets and operate the Whistler Blackcomb mountain resort. Nippon Cable owns the remaining, non-controlling, 25% interest in the partnerships.

Industry Leader

Whistler Blackcomb is the largest and most visited mountain resort in North America. It features 200 marked runs, over 8,000 acres of skiable terrain, 14 alpine bowls and three glaciers, and attracts around 2 million visitors every year.

Whistler compares well with the best that North America can offer, and leads the tables in skiable acres, snowmaking acres, average annual snowfall, vertical drop and lift capacity. The sheer size and quality of facilities make it a favorite among skiers from all over the world.

The company makes money from its lift operations, retail and rental operations, food and beverage facilities and snow and bike training schools. The graph below indicates the breakdown of revenue in fiscal 2014, although the contributions to revenue are fairly stable over time.

The revenues for the lift operations are mainly generated during the ski season, which runs from November to May. The lifts also carry mountain bikers up the mountains during the summer months, but they contribute only 15% of the lift operations’ revenues. While the number of skier visits has remained stable at around 2 million per year, the average ticket price has on average increased by 4% per year over the past 10 years.

The other revenues earned by Whistler all depend on visitors arriving for the main activities and then spending money on retail, equipment rental, food and beverage, accommodations, and ski and biking training. Whistler operates 250 rental apartments, 15 restaurants, and 41 retail and rental outlets either on the mountains or in the Whistler village.

Future Prospects

Since the company listed in 2010, growth has been slow and steady in revenues and gross profit, while cash flow from operations and free cash flow has  remained strongly positive.

The most recent results for the second quarter of the 2015 year reflected a 3.1% decline in adjusted EBITDA profit as skier visits declined by 13% due to a poor snow season. This was particularly unfortunate, as the company completed considerable ski-lift capacity upgrades over the past two years.

Despite the ongoing development of non-ski and summer activities, such as the Peak to Peak Gondola (the longest and highest gondola lift in the world) and the mountain-bike park (which uses the ski lifts), these activities do not generate enough revenue to compensate for the decline in skier visits.

The poor 2014–15 ski season will not likely be repeated anytime soon, allowing the company to fully capitalize on its premier North American position in an industry where barriers to entry are high. Some of the factors that will support future growth of Whistler are the following:

A fast-growing population of 8 million people living in the greater Vancouver and Seattle areas, all within a five-hour drive of Whistler

Excellent transport and other infrastructure provided by several levels of government and the Olympic organizing committee to prepare the venue for the 2010 Winter Olympics

Many opportunities to extend the ski-lift capacities and summer activities

Real estate developments in the Whistler area

The Risks

As demonstrated by the latest results, the business still largely depends on ample snowfall during the peak ski season. Despite the availability of snow-making facilities and numerous summer activities, it just cannot compensate for a lack of good ski conditions leading to lower skier visits during the prime season.

Investors also need to be aware that the resort facilities are located on land owned by the provincial government. The contracts for the development and operation of the facilities run until 2032 for Whistler and 2029 for Blackcomb. The company is already in negotiations to renew or extend the current contractual arrangements, and management is confident that it will be able to continue to operate and develop the facilities when the contracts expire.

A Dividend Champion

Whistler qualifies for inclusion in our Dividend Champions Portfolio mainly based on its attractive dividend yield of 5%, solid balance sheet and excellent cash-flow characteristics. One major concern is the lack of dividend growth, both historically and for the current year, when profits will be somewhat depressed as a result of the relatively weak second quarter.

Valuation

The valuation of the company is on par with the other prime, publicly listed North American mountain resorts, including Vail Resorts, and at a discount to amusement parks, including the Disney parks.

The main attraction from a valuation perspective is the 5% dividend yield. We consider the dividend safe given the sound balance sheet and cash flow, but the risk is that the dividend may not grow over time, which makes it vulnerable to rising interest rates.

So, in summary, Whistler is considered to be one of the prime ski destinations in North America and, according to some pundits, the world. The share price did not react well to the relatively weak second-quarter results and provide an opportunity for investors to buy shares in a high-quality operation. Although there is little prospect of profit growth in the current year, the attractive dividend is reasonably safe and should provide some downside protection until the business can resume the longer-term growth pattern. Buy WB below $19.80.