Wednesday, May 7, 2014

CKEC, CNK: Q1 results ...

Carmike (CKEC)

Carmike (CKEC) reported mixed Q1 results on Monday after the close, with revenues coming in ahead of consensus and EPS a slight miss.  

The bigger news, in our opinion, was the announcement of National CineMedia (NCMI), which is founded and partially owned by AMC, CNK, and RGC, acquiring Screenvision in which CKEC has a 19% stake.  As we wait for details regarding this deal to be released once it is closed, we know that the main benefit for CKEC is access to more national ads which could possibly drive ad revenues slightly higher.  Unfortunately, CKEC will not get a taste of Fathom Events' alternative content as that business was spun off by NCMI.  Based on where NCMI is currently trading at, we think the acquisition could add between $2/sh and $3/sh to the valuation of CKEC, which was trading at what we viewed to be fair-value prior to the acquisition announcement.  It reacted positively to the news and closed up 10% at $32.89 on Tuesday.  Our 5-year DCF model of CKEC still spits out a $30/sh valuation of the Company.  Post the Screenvision acquisition, it could be worth between $32 and $33, which does not represent much upside.  We note that when we initially discussed CKEC, it was trading at $31.69/sh.  

Regarding CKEC's Q1 performance, while its 2013 acquisitions helped the top-line, margins remained below its peers'.  

Total revenues of $158.9MM were up 23% Y/Y. Admission revenues per attendance were $7.19, on track to meet our $7.27 estimate for the full-year.  We break out concessions and other revenues into concessions and ad revenues in our model based on certain assumptions.  We estimate concession revenues only per attendance came in at $3.40, approx. 8% higher than Q1 '13.  This figure is running ahead of our $3.31 estimate for FY '14, representing possible upside.  As mentioned earlier, the acquisition of Screenvision by NCMI could up CKEC's ad revenues, possibly pushing total revenues to $700MM+.  Our estimate for FY '14 total revenues is $696.4MM.  

The negative part of the Q1 report was the adj. EBITDA margin of 13%.  We have assumed a 17% adj. EBITDA margin for this year.  So, let's hope the higher concessions and ad revenues can help expand margins going forward.  

CKEC is still trading at a premium compared to its peers, with highest FY '14 EV/EBITDA of 9.1.  Its peers' average is 8.7, with CNK representing the lowest one at 8.2.  In addition, unlike AMC, CNK, and RGC, CKEC does not distribute any dividends.  Average forward dividend yield of the others is nearly 4%.  We remain 'neutral' on CKEC.  


Cinemark (CNK)

Cinemark (CNK) reported solid Q1 results on Tuesday, beating the Street estimates on the top and bottom-line.  In addition, CNK's EBITDA margin is running ahead of our estimates for the full-year.  We remain positive regarding the stock and maintain our $36/sh valuation based on a 5-year DCF model and CNK's stake in NCMI, representing a 23% upside.  The acquisition of Screenvision by NCMI, could represent additional upside for all NCMI founders and stake holders - AMC, CNK, and RGC.

Total Q1 revenues (US and international) of $602.3MM were up 10% Y/Y.  We note that 2013 numbers include operations in Mexico which were divested last year.  Adj. EBITDA margin of 21.3% in Q1 indicates the Company is on track to meet our 21.4% margin assumption for the year.    

Total US revenues were up nearly 22% Y/Y.  US Admissions revenues increased 21% Y/Y, with admission per attendee at $6.96, up 3%.  This is impressive, in our opinion, as CNK has not yet hiked up its prices similar to its peers, so there is upside.  We expect US admission revenue per attendee to be at $7.09 in FY '14.  Concessions revenue per attendee increased 5% to $3.58, higher than what we have estimated for FY '14.  With overall prices being lower than its peers', CNK still continues to generate higher margins.  US adj. EBITDA margin of 21.2% was impressive, especially given that we have modeled in 20.4% for the full-year.  

International revenues declined 13%, but that is mainly due to the divestiture of operations in Mexico.  Excluding that, international admission revenues were up approx. 12% Y/Y according to management.  International admission revenues per attendee were $4.70 in Q1.  We expect that to increase to $4.80 for the entire FY '14.  Concessions revenue per attendee was $2.27, which makes the $2.30 that we have modeled attainable.  Adj. EBITDA margin of 21.9% is running below our 23.8% estimate for the year.  Given the upcoming World Cup, we think Q2 and Q3 international opex will decline slightly, possibly helping up the adj. EBITDA margin for the year.     

Given the Company's ongoing development in Brazil and management's capex guidance, we upped our FY '14 capex estimate by approx. $15MM to $290MM.  This change did not impact our valuation of CNK significantly. Again, we remain positive regarding the stock and maintain our $36/sh valuation based on a 5-year DCF model and CNK's stake in NCMI, representing a 23% upside.  More details regarding our view of CNK and other movie theatre companies are available at: http://mogharabi.blogspot.com/2014/03/amc-ckec-cnk-rgc-some-thoughts-on-movie.html.

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