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Mid-Cap

Village Roadshow : Is the stock a buy?

August 31, 2015 | Team Kalkine
Village Roadshow : Is the stock a buy?

Village Roadshow Ltd
 

  • Shares in the company rose by more than 8% on the announcement of its full year's earnings results despite reporting a decline in net profit. Most people in Australia associate it with Village Cinemas because it operates more than 700 of them through Australia, Singapore and the United States but it also owns theme parks such as Sea World and Movie World on the Gold Coast.
 
  VRL Cash Flow (Source - Company Reports)

Results for FY 2015
 
  • It reported a strong performance From the Cinema Exhibition business in FY 2015 which partially offset the worst results from the Theme Parks Division which was negatively impacted by the horrendous weather on the Gold Coast and in Sydney which was widely reported as being the wettest summer/January in 50 years during the critical busy period. Despite these challenges, it demonstrated the diversity and strength of its asset portfolio with an attributable net profit of $ 43.9 million for the year ended 30 June 2015 though this was down from the $ 45.8 million reported in the previous year. The results included attributable net losses from material items of $ 6.2 million compared to $ 10.7 million in the previous year.
 
 VRL Results Summary (Source - Company Reports)
  • EBITDA was $ 165.7 million down 3% over the previous year. This was a result of robust divisional operating performance considering the circumstances, meticulous cost control and management, innovative marketing and product differentiation. NPAT for the year before material items and discontinued operations was $ 50.1 million compared to the previous year's figure of $ 56.5 million. Diluted EPS before material items and discontinued operations was 31 cents per share compared to 34.9 cents per share and the increased interest expense following the capital return to shareholders and the additional expenses for the development of the digital platform and Asian expansion have had their impact. With the help of its core business capabilities, the company has an exciting agenda for future growth. In the Cinema Exhibition division, sites are under construction in new population corridors in Australia and in the USA and, in the Theme Parks, sites are being developed in major cities in China. The expansion is balanced in view of the commitment of the company to reward shareholders with regular increases in dividends. A special dividend of $ .15 per share was paid in July 2014 with a final dividend of $ .14 per share in October 2014 and an interim dividend of $ .14 per share in April 2015 all of which were fully franked. Now the board has declared a fully franked final dividend of $ .14 per share for FY 2015 payable on 6 October 2015. The board intends to pay a fully franked special dividend of $ .10 per share subject to the availability of franking credits, capital commitments and business conditions.
 
 VRL Group Debt (Source - Company Reports)
  • Among the highlights for FY 2015 are the strong second-half performance with an increase of 13% in NPAT to $ 34.9 million compared to the same period in the previous year. The box office performance of Cinema Exhibition in Australia was particularly notable with profit before tax up 24% on the previous year. DVD and digital distribution rights for Warner Bros products were received to complement the existing theatrical distribution for the products. Several important agreements were progress for development plans in China in particular the joint venture for funds management with CITIC Trust. The Film Distribution division acquired approximately 1/3 of the US-based film distributor FilmNation Entertainment. Despite the adverse weather conditions, the Theme Parks Division continued to perform well and the new Sea World Resort conference centre was opened in July 2015. Significant legislative progress has been made on anti-piracy legislation in Australia. In a statement by co-Executive Chairman and co-Chief Executive Robert Kirby, he said that theme parks is the company's biggest division and one of its major growth engines in the future. He regarded the signing of the joint venture agreement with CITIC as a strategic building block for further progress in China. Co-Executive Chairman and co-Chief Executive Graham Burke said that the Cinema Exhibition Division had a record year and, with some outstanding films in the pipeline, progress is expected to continue. The two of them stressed that they can't wait to get over the washout of the theme parks in 2015 and look forward to some sunshine in 2016.
 
 VRL Full Year Results  (Source - Company Reports)
Operating cash flows and debt
 
  • Operating cash flow for Theme Parks was $ 81.3 million and free cash flow was $ 31.9 million after capital expenditure of $ 49.4 million. Cinema Exhibition contributed $ 70.6 million and $ 59 million after capital expenditure of $ 19.6 million. Film Distribution provided $ 27.9 million and $ 25.6 million respectively after capital expenditure of $ 2.3 million. Corporate and others provided ($ 76.5 million) and ($ 86.1 million) after capital expenditure of $ 9.6 million. For the company as a whole, operating cash flow was $ 111.3 million and free cash flow was $ 30.4 million after capital expenditure of $ 80.9 million.


 
  • On group debt, the divisional outstandings as on 30 June 2015 were as follows. Theme parks Australia had drawn debt of $ 257.7 million compared to $ 267.3 million, theme parks USA had $ 10.7 million compared to $ 9.1 million, Cinema exhibition Australia had $ 64.8 million compared to $ 66.7 million, film distribution had $ 81.2 million compared to $ 79 million and others stood at $ 83.1 million compared to $ 58.8 million. For the group as a whole, the figure was $ 497.5 million and $ 480.9 million. After taking into account cash on hand of $ 95.3 million compared to $ 130.4 million, net debt on the balance sheet was $ 402.2 million compared to $ 350.5 million. For the group as a whole, net debt/EBITDA was 2.5 times and EBITDA/interest was 6.3 times.
 
  • For the Australian theme parks, approximately 100 acres of freehold land is available for new development opportunities. In China, there is the CITIC Fund and the theme parks while new cinemas are being developed in corridors where the population is growing. In the USA, there are the iPic Gold Class Cinemas and FilmNation the production and international film sales company. Finally, there is the expansion of Edge Loyalty.
 
  • With the expectation of better weather in 2016 and the new movies in the pipeline, we would expect better results next year and consider that this stock could be a good long-term investment at the current prices. Accordingly, we would rate the stock as a Buy at the current price of $7.00.

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