UPDATE: Bankers rolled out their coverage today (1.27.2014) with five out of the seven putting a “buy” on the stock. BofA and B.Riley came out with “hold” ratings. The price target average is right around $25 with the shares currently trading just over $21. As expected it’s been a decent return from the $18 IPO price and should continue to offer modest growth and dividend yield.
AMC (NYSE: AMC) is the biggest movie theater chain in the US with revenues of just over $2.7B and $450M in adjusted EBITDA. They are offering 18M shares in the $18 to $20/share range with Citi, BofA, Barclays and Credit Suisse leading the charge on this $350M deal. The market cap is $1.8B at the mid-point with net debt post-IPO of $1.6B or a TEV of ~$3.4B or 2x sales.
Basically AMC is driving their business forward by improving the customer experience (bigger seats, high quality sound and picture, with better food and drinks.) In the roadshow the management team clearly demonstrates the excellent ROI they are getting from offering fewer, more high quality seats in their theaters. The economics are straightforward – attendance growth and slightly more spending per visitor.
That said it’s not exactly a barn-burner of a growth story. But it’s solid with what they expect to be 8-9% annual growth in EBITDA. Returns to shareholders are in the form of a dividend (currently 4.2% at the mid-point) and some capital appreciation as the company grows.
They also have some other assets like ownership stakes in National CineMedia (NCMI) and RealD (RLD) along with $700M of federal tax net loss carry forwards that lower their tax bills.
Our conclusion on the deal is that it should get done, probably in the range and given the dividend has a reasonable chance to trade up a little to get the effective yield to 3.0% or 3.5%.
Included below are some highlights from the transcript with a link to the AMC Entertainment IPO roadshow slides. It’s interesting to read about how much return one can get with “plush, power leather recliners [that] are so comfortable and give our guests a ton of personal space. You can sink in and kick back with the push of a button.”
Seriously! In one example they took the number of seats down from over 4,000 to about 1,100 and achieved a 33% increase in attendance in the second year. People love those seats.
We have 343 theatres. Just under 5,000 screens. If you were to count screens, about 13% of the screens in the U.S. are AMC-branded; yet, because of the productivity, the location, the size and the experience that we provide, about an 18% market share any given week of the year. About 40% of the U.S. population lives within a 20-minute drive of one of our theatres. This gives us what we call national reach servicing just under 200 million guests a year.
Going to the movies compared to just about any other form of out-of-home entertainment provides great value for the customers.
2012 was a record-setting year [with] $10.8 billion dollars in box office revenue. 2013 looks to have a very reasonable chance of being perhaps even better.
The last of the action fronts is target programming. This is because our country is not homogenous. There’s a lot of diversity. People want to see what they want to see. We want to make sure that we’re giving them the opportunity to see [what they want to see]. The big movies, of course. Everybody wants to see Hunger Games and given the results of last weekend, just about everybody did. But people also want to see movies from the countries they come from. People want to see movies that are perhaps more specialized. We need to make sure that we target our programming to our audience and have had great success with that.
With each of [our] five strategic initiatives (more comfort and convenience, enhanced food and beverage, guest engagement and loyalty, premium sight and sound and targeted programming) we’re already ahead in the pivot towards being the customer experience leader. Each of these concepts is proven and scalable with repeatable results. Together, all of them make our customers smile and give them many reasons to visit our AMC amazing theatres.
Now assuming our costs grow in line with inflation and because we have largely a fixed cost business model — and most noteworthy of that would be our rent — revenue growth creates operating leverage in our business that we would expect to result in about 3-4% of additional EBITDA growth on an annual basis. So, it’s a combination of strategic initiatives driving revenue growth and the operating leverage in our business driving additional EBITDA growth that, in combination, will deliver 8-9% annual growth in EBITDA.
There’s a lot more detail in the full transcript which is posted on our transcript page.
The roadshow slides (PDF) can be downloaded here: AMC IPO Roadshow Slides December 2013.
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