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Challenger Acquisitions Limited: THE INVESTMENT CASE

Flagship NewYork wheel key for Challenger Acquisitions after Starneth realignment

The group sees other acquisition opportunities in the attractions sector this year after realigning its relationship with engineering group Starneth.
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Challenger’s New York wheel project is making “fantastic” progress and is on schedule to open in April 2018

Challenger Acquisitions Limited (LON:CHAL), which manages and invests in the construction of giant observation wheels, is bullish on its flagship New York project, which is scheduled to complete in 2018

The group also sees other acquisition opportunities in the attractions sector this year after realigning its relationship with engineering group Starneth.

Challenger is selling its interest in Starneth, in a deal worth up to US$6mln, to a company controlled by Chiel Smits, Starneth’s chief executive.

The group said it will receive the cash on the closing of at least two major development projects over the next two years, including the giant observation wheel project in Jakarta, where developer's funding arrangements are “awaiting finalisation”.

WATCH: Challenger inks significant deal …

Chief executive Mark Gustafson said: "Mindful of the extended delay in commencing work on the Jakarta project, the long timeline required to commence construction on other giant observation wheel projects and having carefully assessed potential development options for the company, we consider it to be most prudent for the short and long-term growth prospects of Challenger to divest our interest in Starneth.”

Gustafson told Proactive: ''[The deal] was a very good way of addressing the long term timelines to get these projects moving forward''.

Following the deal the company’s main asset will be its three equity units of the company that is developing the New York wheel, but Gustafson also sees a couple of operating acquisition opportunities in the attractions sector in the coming year.

Separately, Challenger has brokered a five-year cooperation agreement under which Starneth can provide the design, engineering and project management for observation wheel projects and Challenger can provide potential funding options for the developers of select projects.

Big wheel in Big Apple

In October, Gustafson said Challenger’s New York wheel project is making “fantastic” progress and is on schedule to open in April 2018.

Challenger – which has a 3% equity stake in the US$590mln project – added that that the foundation for the terminal building on Staten Island is “mostly” finished, and would be structurally complete in December, while the majority of the attraction’s car park is now operational.

Once finished, the New York wheel will be around 50% bigger than the London Eye and it is hoped it will be able to carry around 3.5mln passengers each year.

The London Eye has become an icon of the city’s skyline and the top of any tourist’s itinerary.

It is the most popular paid tourist attraction in London with over 3.75mln visitors a year.

Smits, the boss of Starneth - which joined the group last year in via a £5.6mln reverse takeover deal – was designer of the London Eye and has worked on some of the world’s largest observation wheels.

Starneth is guiding the development of the New York Wheel Project on Staten Island.

The wheel is expected to turn into one of New York City’s major tourist attractions when it becomes operational in 2017, with views of New York Harbour, the Statue of Liberty and Lower Manhattan.

Analysts predict it to make annual operating profits in excess of £70mln (US$100mln) a year.

Number one in a very small field

Challenger is recognised as the go-to developer of giant observation wheels worldwide and it seems to have lived up to its primary objective of advancing the brand name in the attractions sector as well as securing potential wheel project contracts.

Challenger still expects Asia to be one of the most active regions despite the delays to its wheel project in the Indonesian capital Jakarta.

The Iconic Wheel there will be 125m tall and carry a maximum capacity of 1,440 customers an hour.

The group estimates around 24 months from the official commencement date for the wheel to be completed.

The main market-listed group’s shares surged nearly 40% last August after the group updated investors on its Jakarta project.

A further three sites have been identified in China and two more in the rest of Asia.

The group is also looking to build further equity stakes in select projects, as it has done in New York, and is exploring the possibility of an equity stake in China. It is also in the process of opening an office in Singapore.

Challenger reckons that, in the world of giant observation wheels, there is a potential market opportunity value of around US$1bn.

The group’s losses for the year to last June were £1.51mln, up from a £0.75mln loss a year earlier, with revenues of £2.03mln all of which came from Starneth.

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The London Eye
January 31 2017
The group sees other acquisition opportunities in the attractions sector this year after realigning its relationship with engineering group Starneth.

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