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Challenger Acquisitions eyes Asia for next big wheel project

A closer examination of the big wheel builder Challenger Acquisitions. We look at what it does, how much it's worth and where it has set its sights.

London Eye at night
The London Eye has become an icon of the city’s skyline.

Challenger Acquisitions (LON:CHAL) manages and invests in the construction of giant observation wheels.

The wheels become major tourist attractions in their own right, churning out consistent revenues with high footfall.

The London Eye, for example, 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.

The group has a steady long term pipeline of 25 projects and at least one new project will commence each year, chief executive Mark Gustafson told investors.

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.

The jewel in the crown is Starneth, which joined the group last year in via a £5.6mln reverse takeover deal.

The Starneth team is headed by London Eye designer Chiel Smits and has worked on some of the world’s largest observation wheels.

Initial financing for projects for the most part comes directly from the equity market.

With its AIM listing, Challenger creates a pipeline for Starneth to fund some of the projects, particularly where start-up capital is required to commence development.

Earlier this month it raised £500,000 through the issue of convertible loan notes to maintain its fast-paced development approach.

Big wheel in the Big Apple

Challenger currently owns a 3% shareholding in the half-billion dollar New York Wheel Project on Staten Island.

The Starneth subsidiary is guiding the development of the project.

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.

"We are constantly evaluating expansion opportunities and continue to make progress in building our portfolio of Giant Observation Wheels,” said Gustafson.

The group is selective, however. Its 25 projects were carefully chosen from a possible 72.

Looking at the various components of the group’s pipeline there is no shortage of demand or opportunities, so Challenger can afford to be picky.

It is in the process of securing another site in Europe and has identified a second opportunity in another city.

Three other developers in separate locations have requested direct input from its specialist team at the Starneth subsidiary.

The group is establishing regional offices in Dubai and Florida where it marks out further opportunities in key tourist destinations.

Management bids have been sent to three cities in the Middle East, while the group also said it was supporting developers of attractions across the America.

Asia is the big growth area

But Challenger expects Asia to be one of the most active regions.

The group confirmed its wheel project in the Indonesian capital Jakarta has made further progress to secure funding.

The Iconic Wheel 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.

Shares surged nearly 40% earlier this month 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.

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

Losses for the year to June were £1.51mln (£0.75mln), with revenues of £2.03mln all of which came from Starneth.


Quick facts: Challenger Acquisitions Limited

Price: 0.13 GBX

Market: LSE
Market Cap: £410.2 k

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