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Village Roadshow Video



 

Stock Of The Day - Village Roadshow (BUY)

Quite recently, the Village Roadshow (VRL) announced about signing of an agreement between its wholly-owned subsidiary, Village Roadshow Holdings Pty Ltd and CITIC Trust Co. Ltd in relation to establishing a funds management business. The purpose behind this agreement lies in raising funds for investing in Theme Parks, entertainment facilities and real estate development throughout Asia with China and South East Asia in focus. The first fund of about US$500m will be established with initial investment of up to 5% by the entities, and is expected to be denominated in Renminbi in 2015. By virtue of the agreement, CITIC is to raise the balance of required investment while VRL expects to generate fees through equity ownership in the fund manager. The duo plan to create multiple future funds over subsequent time period. VRL also updated that its Roadshow subsidiary will own about 49% of the funds management company set under this umbrella. The coming together of VRL and CITIC is expected to open-up potential development opportunities such as that in Chengdu, Southern China, Johor Bahru in Malaysia, and South Korea. Apart from this, VRL’s relationship with SeaWorld Entertainment also helps it to continually hunt for joint development opportunities in Asia.



 VRL Group (Source – Company Reports)

VRL encountered uncontrollable tough conditions in 1HFY15 given the weather extremities in the Gold Coast and Sydney. To add to this, the film release timing in the Cinema Exhibition and Film Distribution divisions also affected 1H results. Particularly, Cinema Exhibition division box office attendances were slightly down in 1H on the corresponding period. Strategic pricing along with continued roll-out of the premium Gold Class and max concepts, and marketing campaigns aided the growth of average ticket price and spend per patron. This led to a start of positive momentum in 2H. 


The results for the half-year ended 31 December 2014 entailed attributable net profit of $13.3m in comparison to the prior corresponding period (pcp) result of $18m. The Company further stated that the foregoing included losses from material items of $1.8m after tax in the current period, and $7.6m in pcp. VRL reported half year normalised NPAT of $15.2m, compared to pcp result of $25.6m. The rise in interest expense after capital return in July 2014 and further expenses for digital and Asian expansion initiatives were the factors behind this result.


H1 2015 vs. H1 2014 (Source – Company Reports)

Nonetheless, factors weighing towards positive side entailed a further special dividend of 15 cps paid in July 2014 and final dividend of 14 cps paid in October 2014. The Company also declared a fully-franked interim dividend of 14 cps with a record date of 18 March 2015. Subject to available franking credits and other conditions, the Company intends to pay a fully-franked special dividend of 10 cps during FY16. VRL also reported for good progression for Asian developments although Hainan Island project has been delayed until FY17.


Theme Parks – Gold Coast (Source – Company Reports)

Though the Company expects a good 2HFY15 but attributable net profit, before material items and discontinued operations for full year is stated to be in the range of $46m-$52m given the 1H results and is below full year FY14 NPAT of $56.5m. Particularly and given the weather conditions, the projected Theme Parks’ division full year EBITDA has been reduced by about $7m-$10m. The Company through efforts such as scheduling the “Carnivale” special event in the Easter school holiday period; opening of  “Creatures of the Deep” at Sea World along with “High Country Legends”; launch of new marketing campaign, “Everybody is a Winner”; and expense reduction program, aims to improve the full year results. Specifically, Sea World Resort performed well for Themes Park, Gold Coast, and is said to be augmented by the new Convention Centre scheduled to open in June 2015.


Cinema Exhibition (Source – Company Reports)

Titles including The Imitation Game, American Sniper, 50 Shades of Grey, Insurgent, Jurassic World, The Avengers: Age of Ultron, etc. are expected to provide better prospects for Cinema Exhibition. Singapore seems to be an outperformer for this division. However, exit of the Belfast cinema is expected to affect full year earnings by circa $3m of operating losses. Projects such as Miranda, Sydney - 10 screens; Springfield, Brisbane - 8 screens etc. have been planned or are in progress. Then, iPic Gold Class USA is rolling towards targeted critical mass of sites. Two new under construction sites in North Miami and Houston which have been planned to be opened in 2015 will help getting returns. Under Film Distribution, 2H results are likely to be backed by acquisition of 31.03% equity share in FilmNation, and the distribution deals completed with Warner Bros., Stan and Netflix. Particularly, momentum in the Digital market with completion of the content licensing deal in January 2015 between Roadshow Entertainment and Stan will prove to be fruitful. Although, 2H will benefit from theatrical titles but performance of Mortdecai will balance down the same a little bit. Barring some transition costs, the above-stated steps appear to add earnings in FY16. The Edge Loyalty division is also expected to deliver benefits given the H1FY15 EBITDA growth of 50%.


Village Roadshow Daily Chart (Source - Thomson Reuters)

Net debt at 1HFY15 of $404m with net debt/equity of 78% has been reported. However, the interest cover (EBITDA/Net Interest) remains strong at 5.2x. On operational front, film schedule for remaining 2015 appears to be on a favorable side for Cinema Exhibition and Film Distribution. Sydney Wet ‘n’ Wild is also expected to realise potential which otherwise was found to increase the revenue for Theme Parks, Sydney in latest results.

Given the overall scenario, we put a BUY recommendation for this stock at the current price of $5.81.