RGC Regal Entertainment Group

Sector financial performance:

This company, which is primarily theatre circuit generating revenue from admission and concession, has been grouped into theatre sector in admission to amusement industry.
It seems that the demand for theatre admission of companies in this sector in US market has been continuingly decreasing since 2016 as indicated by decreased attendance (4-6% annually on 2017 and 2018). Due to the decreasing attendance, concession revenue has been negatively influenced as well. It seems that there has been a similar downward trend, in terms of attendance, in international theatre market during the same period of time.
While the decrease in attendance seems to have been offset by increased ticket price and food& beverage price in terms of revenue of admission and concession, it has hurt margins of companies due to increased spending in advertising and lower concession margin. The typical company in this sector has an about 14% gross margin down from about 15% in 2015 with a higher SG&A as percentage of sales (about 6%) and lower operating margin (about 9%).
The typical stock price/cash flow is 26.

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Company performance:

It seems that the demand for admission to theatres of this company has been weak and declined in the past several years (3-7% decline annually) as indicated by continuingly declining attendance. And the decline seems to be accelerating recently while ticket price has been rising. The declining attendance resulted in decrease in revenue of concession while it seems people have bought more popcorn and beverages.
The fiscal 2017 compared with 2016
Admission revenue decreased 2.6% due to decrease of 6.6% in attendance offset by increase of 4.3% in ticket price.
Concession revenue decreased 0.3% due to decrease in transactions offset by increase in volume per patron and price.
Fiscal 2016 compared with fiscal 2015
Admission revenue increased 1.2% due to increase of 3.9% in ticket price offset by decrease of 2.7% in attendance.
Concession revenue increased 3.4% due to increase of 6.3% in volume per patron and price offset by decrease in transactions.
Its gross margin (including advertising and depreciation) has been down from about 13% to 12% of 2017. And with the slightly fluctuated G&A as percentage of sales (to around 3%), its operating margin went down by a little to 9% in 2018.

Stock performance

Before announcement of acquisition agreement (Sep 2017), this stock had a stock price of about $16, implying price/cash flow ratio of 16. The acquired price of $23 implies a price/cash flow ratio of 23. We think that its stock is being relatively overvalued with both $23 and $16, compared with its peer such as CINEMARK HOLDINGS, INC, which has a price/ratio of 17.


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