AMC Entertainment Holdings Inc

AMC Entertainment Holdings Inc (NYSE: AMC) is engaged in the movie exhibition business in the US, the Middle East and Europe. It has around 1,000 theatres across the globe, comprising 10,700 screens. 

Investment Rationale – Expensive at USD 14.00

• From a technical standpoint, 14-day RSI (75.21) is hovering nearly around the overbought position, and therefore, a short-term dip can be anticipated.
• The Company looks overvalued, considering its weak fundamentals.
• Over the past five years, AMC’s stock has fallen around 51.12%, while the benchmark index, NYSE, has risen over 52.55%.
• The Company reported a working capital deficit at the end of Q3 FY20, while 100% of its operations are still not opened.

Risk Assessments

• The Covid-19 pandemic has adversely impacted the motion picture exhibition industry due to social distancing restrictions in place.
• The hefty cost involved in production, distribution and performance can cause indebtedness.

Financial Highlights for the period ended 30 September 2020 (as 4 November 2020)

 (Source: Company Website)

• As of 17 March 2020, AMC has suspended all theatre in the US and the international markets to prevent the spread of Covid-19.
• During Q3 FY20, revenue fell significantly, while the losses got worsened against Q3 FY19.
• The net loss was US$905.8 million in Q3 FY20 due to the temporary suspension of operations.
• In Q3 FY20, revenues of the Food and beverage division fell 96.8% year-on-year, while total theatre revenue plunged 72% against Q3 FY19.

Share Price Chart    

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

During Q3 FY20, the Company reported massive losses against last year, while its ability to obtain additional liquidity is impacted due to macroeconomic uncertainties. Moreover, the theatrical releases have also slowed down with the Covid-19 pandemic. The risk of poor financial results can also impact its ability to invest in upcoming market opportunities. Therefore, it is prudent to avoid fresh investment in the stock since the stock seems overvalued in the current position, while the technical indicator (14-day RSI) reflecting an overbought position. Stock 52 week High and Low were USD 20.36 and USD 1.91, respectively.

Based on the weak fundamentals, suspended operations, and valuation conducted above, we have given an “Expensive” stance on AMC Entertainment Holdings Inc at the closing price of USD 14.00 (as on 18 March 2021), while we look forward to reviewing the Company when 100% of its operations are back in action.  

Tupperware Brands Corp

Founded in 1946, Tupperware Brands Corp (NYSE: TUP) manufactures and markets consumer products globally. It is present in nearly 80 countries with over 8,500 functional designs.

On 5 May 2021, TUP expects to release its earnings release for Q1 FY21.

Investment Rationale – Speculative Buy at USD 27.00

• From a technical standpoint, 14-day RSI (40.91) suggests that the stock is close to the oversold situation, and the price can move upwards from here.
• Over the past five years (FY15 to FY20), gross margin and EBITDA margin have remained above 66% and 13%, respectively, reflecting a decent fundamental.
• The GAAP diluted earnings per share stood at US$0.41 in FY20 versus the loss per share of US$1.47 in FY19.
• During FY20, the Company has right sized the organisation, improved cash flow from operations, refinanced debt, and made significant progress against the Turnaround Plan.

Risk Assessments

• The Covid-19 pandemic can adversely impact the supply chain and its ability to ship the products to customers globally.
• The foreign exchange fluctuations, loss of licenses and economic instabilities can impact the Company’s growth trajectory.

Recent News

10 March 2021: TUP appointed three additional directors to its Board, which will bolster the leadership team in the organisation.

Financial Highlights for the quarter ended 26 December 2020 (as on 22 February 2021)

 (Source: Company Website)

• During Q4 FY20, sales soared 17% over Q4 FY19, which was even 20% in local currencies.
• The Company also reported a pre-tax income of US$80 million in Q4 FY20 against a loss of US$24 million in Q4 FY19.
• TUP also generated a turnaround cost savings of US$72 in Q4 FY20 and savings of US$192 million for FY20.
• The Company also reported an improvement of US$137.2 million in FY20 against FY19.

Share Price Chart    

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings (NTM) (Illustrative)

Conclusion

During FY20, Tupperware Brands delivered a spectacular financial and operational performance. Moreover, the Company has realised that geography is no longer a barrier to cater to new customers with digital capabilities. Looking forward, it has plans to expand product categories and increase access points to grow the business considerably with the support of improved cash flow. Stock 52 week High and Low were USD 38.59 and USD 1.26, respectively.

Based on the robust financial performance, industry prospects, business capabilities with support from the valuation conducted above, we have given a “Speculative Buy” stance on Tupperware Brands Corp at the closing price of USD 27.00 (as on 18 March 2021), with a lower double-digit upside potential based on 10.77x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

Hexo Corp

Incorporated in 2013, Hexo Corp (NYSE: HEXO) is a consumer-packaged goods cannabis provider, which has licensed infrastructure, cannabinoid isolation, and regulatory expertise to serve and partner with Fortune 500 Companies.

Investment Rationale – Expensive at USD 7.23

• From a technical standpoint, 20-day SMA (7.27) seems unfavourable and indicating a downward trend in the stock.
• Over the past five years (FY15 to FY20), gross margin has remained below the industry median. In fact, gross margin and other key profitability ratios were in the negative zone in FY20, while the industry reflected a significant positive value.
• Over the past one month, HEXO’s stock has fallen around 10.30%, while the benchmark index, NYSE, has risen around 1.48%.
• The Company continued to report net losses, and thus, it is dependent upon external funding for pursuing its growth opportunities.

Risk Assessments

• The unfavourable changes in foreign currencies and economic downturn can significantly impact profitability.
• The Covid-19 pandemic can result in the delay of contracts, and thus, it can impact the cash flows.

Recent News

10 March 2021: HEXO announced that it won a complete dismissal of shareholder’s suit filed in the Southern District of New York since the plaintiffs failed to allege actionable misstatements or omissions.

Q2 FY21 Report for the quarter ended 31 January 2021 (as on 18 March 2021)

 (Source: Company Website)

• The adjusted EBITDA improved for the seventh consecutive quarter in Q2 FY21.
• The net revenue jumped 94% in Q2 FY21 over Q2 FY20, as the Company continued to increase the market share in Canada.
• The Company also appointed a General Manage for US operations to Charles Bowman.
• Overall, the Company remained in losses, and subsequently, the operational cash use stayed negative.

One Year Share Price Chart    

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

HEXO has been reporting net losses since inception, while its stock price appears to be overstretched considering the challenging macroeconomic conditions. Moreover, the Company is exposed to the credit risk with the non-performance of its counterparties. Also, there is a liquidity crunch in the organisation, which is aggravated by volatility in the debt market. The Company also face intense regulatory pressure, which can restrict its growth potential in the future. Therefore, it is rational not to punt on this stock in the prevailing scenario. Stock 52 week High and Low were USD 11.04 and USD 1.47, respectively.

Based on the limited operating history, absence of revenue, and uncertain market conditions, we have given an “Expensive” stance on Hexo Corp at the closing price of USD 7.23 (as on 18 March 2021), while we look to reviewing the upcoming financial and operational updates.   

*All forecasted figures and Peer/Industry Information have been taken from Refinitiv, Thomson Reuters.

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