The shares of Village Roadshow Ltd (ASX: VRL) fell by 6.8% during the first three months of this year (January to march) on the back of the group’s poor first half of 2015 performance. The hard weather at Sydney and gold coast theme parks, coupled with the less film releases at its cinema exhibition and film distribution divisions has impacted the group’s performance during the period. As a result, the attributable net profit for the first half ended on December 2014 fell to $13.3 million, as compared to $18.1 million in the half year ended on December, 2013.
On the other hand, VRL rallied 10.6% over the last three months, driven by the film’s releases as estimated by the company. Village Roadshow cinemas benefitted from the strong performance by films like Jurassic world, Mad Max: Fury Road and The Hunger Games: Mockingjay Part 1 at the box office. Jurassic World, the movie from Universal’s Jurassic park franchise outperformed at the box office, beating all-time industry records. Based on the online movie publication and box office reporting service Box Office Mojo statistics, Jurassic world is the first film in the history to collect a gross amount of more than USD 500 million across the globe during the opening weekend, beating the standards set by earlier films like The Avengers: The Age of Ultron and Harry Potter and the Deathly Hallows: Part 2. Jurassic world also joined the USD 1 billion club, wherein only 21 movies have reached this levels.
Village Roadshow attractions (Source: Company Reports)
In addition, VRL’s investment at theme parks and entertainment facilities in Asia through CITIC (a Chinese state-owned investment group) has also contributed to the stocks rise in the last three months. Both the firms would be investing up to 5% of the initial US$500 million and CITIC would be responsible in raising the remaining investments into the fund. VRL seeks to expand its presence into China and South East Asia though this move. Moreover, Loulan mystery movie and TV culture, a private special company formed with Chinese interest and village roadshow pictures Asia has also committed to produce the film of the “Twilight” director, Catherine Hardwicke romantic epic. The movie will be starting in August and will be shot at Xinjiang and Beijing. The expected release is by 2017 or early 2018.
Meanwhile, VRL has been taking several initiatives like strategic pricing of tickets, laying a solid base for the second half. The group was already able to improve its average ticket price and spend per patron through innovative campaigns like ongoing roll out of the premium gold class and max concepts. Moreover, the release of big films like Hunger Games instalment (Mockingjay Part 2) along with other films is expected to lead a huge number of movie lovers to the Village Roadshow cinemas. The group has also been making investments in new sites to target the rising population corridors. As a result of all these efforts, VRL estimates an improved performance during the second half of the year. However, the group forecasts the full year net profit in the range of $46 million to $52 million, against last year’s net profit after tax of $56.5 million, impacted by the net profit decline in the first half of the fiscal year.
New Sites screens (Source: Company Reports)
Despite challenging environment, Investors should note that Village Roadshow is a good dividend player, and even announced a fully-franked interim dividend of 14 cents per share for the first half period ended on December 2014, payable on April 2015, despite the challenging environment. In addition VRL also reaffirmed its forecasts of paying a fully-franked special dividend of 10 cents per share for the fiscal year of 2016, depending on the franking credits, capital commitments and business environment.
The expansion coming from Asia, major film releases this year, results from strategic pricing of tickets and improving business environment are expected to drive the shares of VRL higher, going forward. Village Roadshow has a strong dividend yield of 4.61% and is trading at an attractive valuations with P/E at 24.26x, which is better as compared to the industry peers.
Based on the foregoing, we give a “BUY” recommendation to Village Roadshow at the current levels of $6.18.
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