Company Overview: EVENT Hospitality and Entertainment Limited, formerly Amalgamated Holdings Limited, is engaged in cinema exhibition operations; ownership, operation and management of hotels and resorts in Australia and Overseas, and property development. The Company's principal activities include cinema exhibition operations in Australia, including technology equipment supply and servicing, and the State Theatre; cinema exhibition operations in New Zealand and Fiji; cinema exhibition operations in Germany; operation of the Thredbo resort, including property development activities, and investment properties and investment in shares in listed and unlisted companies. The Company's segments include Entertainment Australia, Entertainment New Zealand, Entertainment Germany, Hotels and Resorts, Thredbo Alpine Resort, and Property and Other Investments. The Company has operations in Australia, New Zealand, Fiji and Germany.


EVT Details

Decent Performance in 1H FY 2020: EVENT Hospitality & Entertainment Limited (ASX: EVT) is primarily engaged in the business of cinema exhibition operations in Australia which includes technology equipment supply and servicing, and the State theatre. As on February 27, 2020, the market capitalisation of the company stood at ~A$1.91 billion. Recently, the company released its interim results for the period ended 31 December 2019, wherein it reported an increase of 2% in group revenue from continuing operations to $524 million while its full-year statutory profit including discontinued operations grew by 38.7% to $93.6 million against 1HFY19. It was mainly driven by robust results from the Entertainment group, continued strong results from the Hotels division in the competitive market, and a decent result from Thredbo despite less favourable ski conditions. EVT’s Australian entertainment revenue rose 4% while profit increased 1% on an adjusted basis, on the back of record 1H Australian box office.

The company’s 'future of cinema' strategies are on track and delivering robust results which include market share growth of blockbuster films, growth in admissions and average admission price with new cinema formats and the record merchandising spend per head strengthened by concepts related to new food and beverage. The New Zealand circuit witnessed record result, and normalised profit rose by 30%, or 49% on an adjusted basis, outperforming the overall market. Market share rose by 4 percentage points, admission growth rose 6% while average admission price increased by 10% and merchandising spend per head witnessed a rise of 6%. Coming to the Hotel division, the business witnessed a good result and that too in a competitive market. Its adjusted revenue was flat while profit increased on a comparative basis. Growth was witnessed in occupancy, revenue per available room and owned hotel conference and events revenue. There was an improvement in gross operating profit margin as a result of solid operating strategies.

Considering the long-term business prospects, robust business strategy to strengthen its asset base, lower exposure towards long-term debt, decent operational capabilities and fundamentals along with regularity in the payment of dividends, we have valued the stock by using a relative valuation method, i.e., P/E multiple and arrived at a target price of high single-digit upside (in % term). At CMP of $11.650, the stock of the company is trading at P/E multiple 17.92x of FY20E EPS.

Key Financial Highlights (Source: Company Reports, Thomson Reuters)

Top 10 Shareholders: The following image provides a broader overview of the top 10 shareholders in EVENT Hospitality & Entertainment Limited:


Top 10 Shareholders (Source: Thomson Reuters)

Overview of Key Margins: The company’s EBITDA margin stood at 30.9% in 1H FY 2020 as compared to 1H FY 2019 figure of 21.8%. Also, there has been a marginal rise in operating margin from 17.6% in 1H FY 2019 to 17.9% in 1H FY 2020 and, therefore, it can be said that the company’s operational capabilities have improved. Notably, its net margin stood at 11.3%. RoE came in at 5.2% in 1H FY 2020 which is an increase from 2H FY 2019 figure of 3.7% and, thus, it looks like the company has been focusing on delivering returns to its shareholders. There are expectations that improvement in operational capabilities, along with the focus towards delivering returns might attract the attention of the market participants.


Key Metrics (Source: Thomson Reuters)

In 1H FY 2020, the percentage long-term debt to total capital stood at 25.6% which is less than 1H FY 2019 figure of 27.3% and, therefore, it can be said that EVT has reduced its exposure to long-term debt. Generally, lesser reliance on the long-term debt helps the company in focusing on growth objectives which could improve the overall performance of the company.   

Thredbo Resumed Summer Resort Operations: Thredbo Alpine Resort has resumed summer resort operations from 14^th January 2020. This follows temporary closure of Thredbo because of bushfires in Kosciuszko National Park. All in-resort operations which include mountain biking has been resumed. As per the release, the impact of temporary closure is not material to the company’s earnings; there are expectations of the slow business recovery.

How Entertainment Australia Performed in 1H FY 2020: With respect to Entertainment Australia, the revenue rose 2.9% on the YoY basis to $223.2 million, that is consistent with the overall growth in Australian National Box Office of 2.4%. There has been an increase in the average admission price of 3.6% because of targeted demand pricing and more customers choosing to watch the film in one of the company’s premium cinemas. The premium contribution rose 1.4% points on the YoY basis.


Entertainment Australia (Source: Company Reports)

New Zealand Entertainment Revenue Rose By 15.7% YoY: With respect to New Zealand Entertainment business, the revenue amounted to $49.1 million, which was an increase of 15.7% as compared to the previous year. New Zealand Nationwide Box Office rose 4.6%, and the company outperformed the market with box office revenue up 16.9%. When adjusted for a reduction in the virtual print fee income, New Zealand Entertainment revenue increased by 17.0%. The average admission price rose 10.3% because of targeted demand-based variable pricing and the rollout of more premium seating options. The business generated EBITDA amounting to $8,230,000, which was 22.3% above the prior year while normalised profit before interest and income tax expense amounted to $5,221,000, reflecting a rise of 29.6%. When adjusted for a reduction in the virtual print fees, EBITDA witnessed an increase of 32.3% and normalised profit before interest and income tax expense rose 49.3%.


Entertainment New Zealand (Source: Company Reports)

Viewpoints on EVT’s Asset Base: The company’s key personnel have commented on the progress on a strategy to strengthen EVT’s asset base. It was mentioned that the focus towards maximising assets by aiming capital investment to generate robust returns has been progressing well. There has been an introduction of new cinema concepts throughout 16 screens in Australia and 12 screens in New Zealand and are surpassing the expectations. Coming to the Hotel upgrade projects, these include QT Sydney, QT Melbourne, QT Gold Coast (in progress) and Rydges Geelong (in progress) in order to garner robust returns from the underutilised space and maintain high standard amidst competition. Notably, the plans are well advanced when it comes to upgrades to Rydges North Sydney, QT Canberra and Rydges Melbourne which are expected to start in the upcoming financial year.

It was also mentioned that divestment of under-performing assets which includes Rydges Townsville in the month of December 2019 contributed favourably to the result.

Decent Dividend-Related Parameters: Based on the performance in 1HFY20, the Board of Directors declared a fully franked interim dividend of 21 cents per share, which is consistent with the previous year’s interim dividend. As can be seen in the below image, the company’s dividend per share has increased between FY15 and FY19 which reflects that the company is sound enough to declare dividends across different business cycles and, therefore, it can be said that the company is possessing decent fundamentals. Moreover, focus towards generating returns for the shareholders could help EVT in gaining traction moving forward.


Dividends Per Share (Source: Company Reports)


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodology: P/E Based Relative Valuation

P/E Based Relative Valuation (Source: Thomson Reuters)


Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 

 
Historical Price Band (Source: Thomson Reuters)
 
Stock Recommendation: The company’s stock has witnessed a decline of 4.74% in the span of the previous six months. EVT has witnessed a compound annual growth rate of 2.19% between FY15- FY19 in the cash receipts and, therefore, it can be said that the company is possessing decent capabilities to build cash levels. In FY19, Australia Entertainment revenue was relatively flat as compared to the previous year at $451.2 million, and the result was achieved even though there was a less desirable genre mix of films for the audience. As at June 30, 2019,cash and term deposits stood at $71,925,000 while total bank debt outstanding amounted to $376,909,000. The company’s secured bank debt facilities were amended and restated on August 15, 2017, and now comprises 1) $545,000,000 revolving multi-currency loan facility, 2) $15,000,000 credit support facility (for the issue of letters of credit and bank guarantees). These facilities would be maturing on August 15, 2020, and these are supported by interlocking guarantees from most group entities as well as are secured by the specific property mortgages.  Considering the long-term business prospects, robust business strategy to strengthen its asset base, lower exposure towards long-term debt, decent operational capabilities and fundamentals along with regularity in the payment of dividends, we have valued the stock by using a relative valuation method, i.e., P/E multiple and arrived at a target price of high single-digit upside (in % term). Hence, we give a “Buy” rating on the stock at the current market price of A$11.650 per share, down by 1.688% on February 27, 2020. 

EVT Daily Technical Chart (Source: Thomson Reuters)

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