Weekly Reports | Mar 06 2020
This story features VILLAGE ROADSHOW LIMITED, and other companies. For more info SHARE ANALYSIS: VRL
By Tim Boreham, Editor, The New Criterion
The new cinema blockbuster as Village fades to black
Just as video didn’t kill the radio star, DVDs didn’t snuff out the silver screen and then streaming failed to deliver the mortal blow.
Now, with the often tumultuous listed life of takeover target Village Roadshow ((VRL)) seemingly destined for the final credits, the diversified Event Hospitality & Entertainment ((EVT)) is likely to come into sharper investor focus as the remaining ASX listed cinema exposure.
Both chains have delivered half yearly results that fall short of being blockbusters, but deserve the celluloid equivalent of three and a half stars.
Rivalling Village as the biggest cinema exhibitor, Event operates 835 screens across 94 venues in Australia and in New Zealand, under brands including Event, Moonlight Cinemas, Greater Union and Birch Carroll & Coyle.
The once-listed Hoyts chain, by the way, was acquired by China’s Wanda Cinema Line in 2015.
Event is far from pure play, as it’s also big in hostelry and owns the Thredbo ski resort (more below).
As far as the flicks go, Event is surfing the success of crowd pleasers such as Superman, Once Upon a Time in Hollywood and The Lion King.
“Australia had a record half in the box office and we tracked relatively in line with that,” says Event CEO Jane Hastings, adding that only the latest Star Wars epic The Rise of Skywalker was OK but failed to live up to lofty sabre-slashing expectations.
Event gleans more than one-third of its revenue from the top five films – and the company’s box office takings from this quintet rose 43% in the half.
Given that, exhibitors are somewhat beholden to what Tinseltown can offer. “We don’t make the films, we play the films,” Hastings muses. “The films will be what the films will be.”
But don’t think that Event is entirely in the lap of the cinema gods, as it’s been experimenting with its offerings to increase bums on seats as well as food and beverage sales.
Taking a leaf from the airlines’ playbook, the chain has introduced a ‘premium value’ version of Gold Class: for an extra five bucks or so, patrons get the bigger and comfier seats without the in-cinema food and booze.
Hastings says 25% of Event’s overall seats are premium, up from 21% a year ago – despite the current skew to family films that haven’t attracted upmarket punters in the past.
The company is also updating tired venues and toying with new concepts such as Event Junior – shopping centre venues that incorporate playgrounds.
“As soon as you will give the market something new to come to they will come and they pay a premium to do so,” Hastings says.
Anyway, the efforts are paying off because Event’s Aussie cinema pre-tax earnings grew and adjusted 7% to $29.7m, with revenue up 6% to $272m.
Admissions grew 2% to 12.2m bums on seats.
Event’s tweaked profit number discounts unfavourable accounting and regulatory changes relating to gift cards, notably a new requirement that they have a minimum three-year expiry.
The company won’t say how much they benefit from “breakage” – the reverse ‘gift’ conferred on the issuer by holders not using their card – but Hastings dubs the cards as an “important income stream in a tough retail market.”
It will be intriguing to see how much other retailers suffer from the consumer-friendly reform, although we doubt there will be much transparency.
The recipient of two friendly takeover offers, Village recorded steady admissions of 12.3m with cinema division profits before tax edging up 6% to $14.1m.
The cinema duo’s fortunes now depend on upcoming flicks such as pending No Time to Die (the latest James Bond instalment), Fast & Furious 9 and Wonder Woman 1984.
It sounds all very Back to the Future, but grab your popcorn and settle in.
Hotels and resorts
Formerly Amalgamated Holdings, Event has also emerged as the only listed exposure to hotels after the Mantra Group was taken over by French group Accord for $1.2bn in 2018.
Even without the Coronavirus domestic hotels have been a tough slog, so the 4% (adjusted) earnings boost recorded by Event’s hotels division (to $34.8m) is worth breaking out the mini bar for.
Event operates the mid-market Rydges and QT and Atura names and with some exceptions the venues have outperformed the broader market. “We know how to sell and position our product and operate in tough conditions,” Hastings says.
But management has been acutely aware of its lack of presence in the budget market – rectified by last month’s $9 million purchase of half of Kiwi pod hotel chain Jucy Snooze.
Once synonymous with over refreshed Japanese salarymen missing the last train home, pod hotels are being pitched at the millennials (18-35 market).
Jucy Snooze has two venues in Queenstown and Christchurch in NZ. “We will launch in Australia, following the market where the budget travellers go to.”
The venues are fresher and funkier than the tired budget offerings, including add-ons such as bars and cafes and co-working facilities.
As for the coronavirus, management estimates a -$2-3m pre tax profit hit in March but the situation is a fast-evolving one.
Industry wide data for the period January 26 and Feb 17 shows revenue per average room (revpar) slumped -21% in Cairns and Gold Coast down -7.5%, with Sydney declining -18%.
The downturn in guest numbers is one thing; the wildcard is the across-the-board impact as hoteliers discount their room nights.
And finally honorable mention goes to the Thredbo division, which had a poor snow season and then faced an existential threat during the summer bushfires.
The resort’s revenues were flat, with normalised profits down -2.2%.
Who said there’s no business like snow business?
Theme parks: not such as easy ride
Village Roadshow’s likely privatisation will also deny investors the chance to compare and contrast the group’s Gold Coast theme park performance against that of its listed exemplar Ardent Leisure ((ALG)).
The past came back to haunt Ardent last week, with the release of a coroner’s report on the 2016 Dreamworld tragedy in which four people died when a ride malfunctioned.
Pulling no punches, the 279 page report alleged shoddy record keeping, “frighteningly unsophisticated systems” and a lack of proper risk assessments over the now defunct ride’s 30-year life.
The news – and the subsequent overall market slump – has almost halved the value of Ardent shares.
Is the reaction justified? Given the prospect of civil law suits and renewed reputational damage, perhaps so.
But the way we see it, the failings were so horrendous that they also made for easy – albeit expensive fixes. It’s probably one of the safest theme parks to visit – not that that is any consolation for the grieving families.
The company’s senior management team – and most of the board – has also been replaced since the disaster.
Meanwhile, Ardent’s theme park arm boosted half-year revenue by 5% to $38.7m and narrowed a previous $5.1m loss to a $1.7m deficit. The company also operates Whitewaterworld and the Skypoint observation tower.
Village must be doing something right, posting record ticket sales (and yields) across its Warner Brothers Movie World, SeaWorld and Wet ‘n’ Wild venues. Village’s theme park earnings before tax crept up 5% to $14.1m.
Management says trading remained strong in January despite the problems with bushfires, the coronavirus and then abnormally wet weather.
Meanwhile, the Village board is mulling BGH Capital’s $4 a share indicative pitch that lobbed on January 24, pipping Pacific Equity Partners’ $3.90 a share entreaty in mid December.
At the time of writing, Village shares were at an -11% discount to the PEP offer which implies that the market expects the offer price to be revised downwards given the market rout.
Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.
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