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AMCEntertainment (AMC)

By  +Follow December 17, 2013 7:43PM
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AMCEntertainment (AMC) is one of the world's largest theatrical exhibition companies and an industry leader in innovation and operational excellence.

This week’s full IPO calendar can be found at IPOpremium.

AMC scheduled a $350 million IPO with a market capitalization of $1.8 billion at a price range midpoint of $19 for Wednesday, December 18, 2013, on the NYSE

The Manager & Joint managers are Citi, BofA Merrill Lynch, Barclays, Credit Suisse.  The Co-Managers: B. Riley & Co., Barrington Research, FBR Capital Markets, HSBC Corporation,

LOYAL3 Securities, Piper Jaffray, Stifel, Wedbush Securities.  The SEC filings are here.

Overview

AMCintroduced Multiplex theaters in the 1960s and the North American stadium-seated Megaplex theatre format in the 1990s.

There’s nothing that AMC currently is doing that can’t be done by its bigger competitors, Regal Entertainment Group (RGC), Cinemark Holdings, Inc. (CNK).

Valuation

           

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing Sept ’13 9 mos

Cap (mm)

Sls

Erngs

BkVlue

TanBV

in IPO

AMC Entertainment Holdings  (AMC)

$1,805

0.7

16.7

1.5

-1.3

19%

P/E with 2012 tax rate

$1,805

0.7

22.2

1.5

-1.3

19%

             

Compare

         

Dividend

AMC P/E with 2012 tax rate

$1,805

0.7

22.2

1.5

-1.3

4.15%

Regal Entertainment Group (RGC)

$3,004

1.0

16.8

-4.6

-2.9

4.30%

Cinemark Holdings, Inc. (CNK).

$3,770

1.1

17.1

3.4

-6.3

3.06%

 

AMC’s P/E (using its 2012 tax rates) is 30% higher than the average of RGC and CNK for the nine months ended September ’13.  However, AMC’s price to sales is about 30% less than RGC’s and CNK’s. 

AMC's gross margin is 35%, healthy enough for what is essentially a service business.

AMC does have a leading market position in five metro markets which account for 40% of revenue. AMC’s bigger markets are less price sensitive than the smaller markets.

In terms of dividend coverage both RGC’s and CNK’s dividends are exceeded by after tax profits. At a normal tax rate, AMC’s dividend payout rate is about the same as annualized after tax profits for the nine months ended September ’13.

Glossary

Conclusion

Institutions like branded companies with lower price-to-sales ratios lower than the competition, that are established with high barriers to competition, and that pay dividends.

The rating on AMC is positive on the IPO.

Dual stock classes

Class A, 19.2 million shares, one vote each.

Class B, 75.8 million shares, three votes each.

(this is an unnecessary quest for more control)

Business

AMC is one of the world's largest theatrical exhibition companies and an industry leader in innovation and operational excellence.

AMCintroduced Multiplex theatres in the 1960s and the North American stadium-seated Megaplex theatre format in the 1990s.

AMC’s field operations teams win recognition from national organizations like the Motion Picture Association of America and local groups in "Best of" competitions, while maintaining greater than 50% top-box customer satisfaction and industry leading theatre productivity metrics.

As of September 30, 2013, AMC owned, operated or held interests in 343 theatres with a total of 4,950 screens primarily in North America. AMC’s theatres are predominantly located in major metropolitan markets, which AMC believes gives its circuit a unique profile and offer strategic and operational advantages.

AMC’s top five markets, in each of which AMC holds the #1 or #2 share position, are New York (42% share), Los Angeles (27%), Chicago (44%), Philadelphia (29%) and Dallas (28%).

For the twelve months ended September 30, 2013, these five metro markets comprised 40% of AMC’s revenues and 38% of its attendance.

Strategically, these markets and AMC’s theatres in them are diverse, operationally complex, and, in many cases, for established locations, the scarcity of new theatre opportunities creates a significant competitive advantage against newcomers or alternative entertainment options.

AMC Stubs– how to get IPO stock.

On April 1, 2011, amc fully launched AMC Stubs, a customer frequency program, which allows members to earn rewards, including $10 for each $100 spent, redeemable on future purchases at AMC locations.

AMC is reserving 1.85% of the IPO amount for AMC Stub members. Read about the offer here.

Revenue     

During the 2012 calendar year, films licensed from the seven largest distributors based on revenues accounted for approximately 90% of U.S. admissions revenues.

During the nine months ended September 30, 2013, AMC opened three theatres with a total of 25 screens in the U.S., permanently closed 4 theatres with 29 screens in the U.S., and temporarily closed 300 screens and reopened 266 screens in the U.S. to implement AMC’s  strategy and install consumer experience upgrades.

Box office admissions

Box office admissions are the largest source of revenue. AMC licenses films on a film-by-film and theatre-by-theatre basis.

Technical innovation has allowed AMC to enhance the consumer experience through premium formats such as IMAX, 3D and other large screen formats.

This enables AMC to achieve higher ticket prices for premium formats and provide incremental revenue from the exhibition of alternative content such as live concerts, sporting events, Broadway shows, opera and other non-traditional programming.

Within each of the major markets, AMC is able to charge a premium for these services relative to smaller markets.

Seat conversions

Over the next five years starting in 2014, AMC intends to invest $600 million in recliner re-seat conversions. Consistent with previous experience, AMC expects landlords will contribute an average of $35 million of capital annually to fund these projects.

Food & beverage sales

Food and beverage sales are the second largest source of revenue after box office admissions.

To address recent consumer trends, AMC is expanding the menu of enhanced food and beverage products to include made-to-order drinks and meals, customized coffee, healthy snacks, premium beers, wine and mixed drinks and other gourmet products.

The costs of these conversions in some cases are partially covered by investments from the theatre landlord. AMC has successfully implemented dine-in theatre concepts at 11 locations, which feature full kitchen facilities, seat-side servers and a separate bar and lounge area.

Starting in 2014, AMC plans to invest an average of $45 million annually over the next five years in enhanced food and beverage offerings across approximately 200 theatres. Consistent with previous experience, AMC expects landlords to contribute an average of $10 million of capital annually to fund these projects.

Seasonality   

Revenues are dependent upon the timing and popularity of film releases by distributors.

The most marketable films are usually released during the summer and the calendar year-end holiday seasons. Therefore, the business is highly seasonal, with higher attendance and revenues generally occurring during the summer months and holiday seasons.

Dividends

AMC expect to pay an annualized dividend of 4.16%,at the price range mid-point, which requires an annual payout of $75 million to cover class A and class B common shares.

Competition

 According to the most recently available information from NATO, there are 1,089 companies competing in the U.S./Canada theatrical exhibition industry, 597 of which operate four or more screens.

Based on information obtained from Rentrak, AMC believes that the four largest exhibitors (in terms of box office revenue) generated 62% of the box office revenues in 2012. This statistic is up from 35% in 2000 and is evidence that the theatrical exhibition business in the United States has been consolidating.

According to NATO, average screens per theatre have increased from 6.5 in 2005 to 7.3 in 2012, which AMC believes is indicative of the industry's development of megaplex theatres.

The two largest publicly held competitors are Regal Entertainment Group (RGC) and Cinemark Holdings, Inc. (CNK).

5% stockholders

Wanda America Investment Holding Co. Ltd., a wholly-owned indirect subsidiary of Dalian Wanda Group Co., Ltd., 99.77% owner pre-IPO.

Dalian Wanda invested about $700 million in connection with its purchase of AMC in early 2012. For the prior eight years AMC was owned by private equity firms, which tried and failed to IPO several times.

Use of proceeds

AMCexpects to net $322.6 million from its IPO. Proceeds are allocated as follows:

AMC has not made a definitive determination as to how to allocate IPO proceeds (which is unusual) but the expectations are to repay debt).

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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By  +Follow December 17, 2013 7:43PM
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