Village Roadshow: Interim result 2013
Recommendation
Village Roadshow’s interim result was superb. Net profit rose 18% to $34m, off a mere 2% increase in revenue, thanks to earnings growth from each division and lower head office costs. This equated to earnings per share of 22.3 cents, from which a 13 cent dividend was declared (fully franked, ex date 28 February).
Theme parks & cinemas blazing
Thanks to a hot summer and innovative events such as ‘fright nights’, the company's Gold Coast theme parks attracted a record 2.8m visitors during the half. This helped boost operating profit 6% to $26.7m. In the US its two water parks generated steady attendance and eked out a small improvement in operating profits.
H1 2013 | H1 2012 | Change (%) | |
---|---|---|---|
Op. rev ($m) | 480.0 | 470.1 | 2.1 |
Net profit ($m) | 33.5 | 28.3 | 18.4 |
EPS (cents) | 22.3 | 20.1 | 10.9 |
DPS (cents) | 13.0 | 12.0 | 8.3 |
Franking (%) | 100 | 0 | n/a |
Debt to equity (%) | 47.5 | 49.8 | -2.3 |
Divisional results (EBIT) | |||
Theme parks ($m) | 26.7 | 25.2 | 6.0 |
Cinemas ($m) | 18.6 | 16.3 | 14.1 |
Film distrubtion ($m) | 29.9 | 29.8 | 0.3 |
Corporate.other ($m) | -12.1 | -15.8 | -23.4 |
Development of a new water park in Sydney’s west and a development/management agreement in China should help boost the division's profits in future periods.
That same hot weather also drove punters indoors, which combined with a good selection of recent movie releases such as Skyfall, Madagascar 3, and Twilight: Break Dawn 2 helped increase the cinema division's visitation 1% to 12.3m.
In an industry where total visitor numbers have trended slightly lower over the past decade, this is a welcome sign. Management claims it has been winning market share from rival Hoyts as cinemagoers increasingly opt for premium options, such as Event’s ‘Gold Class’ lounges. Divisional earnings increased 14.1% to $18.6m.
Even those who headed to Hoyts helped Village’s result thanks to its distribution licence over Warner Brothers content in Australia. Here earnings were stable at $29.9m.
Finally, the company's off-balance sheet investment in film and music producer Village Roadshow Entertainment Group (VREG) literally paid its first dividends: $2.5m for the half thanks to its $100m of preference shares, acquired through the recent recapitalisation and which pay a 5% coupon.
Following its recent recapitalisation, VREG is ramping up production, enabling it to make around six to eight films a year and spread the risk of any one project. Upcoming releases include: The Great Gatsby and All You Need Is Kill. If future releases are successful we could expect far more than $5m a year to flow from this business.
Shareholder focus
At a corporate level it was pleasing to see overheads fall 6% to $9.6m during the half. Shareholders shouldn’t expect too many more gains from here.
Village also announced that key shareholders Village Roadshow Corporation (controlled by directors Robert Kirby, John Kirby and Graham Burke), Robert Kirby and Graham Burke have sold nearly 11m shares via an institutional sale to help increase Village's free float. Following the sale Village Roadshow Corporation will remain Village’s largest shareholder with around 44% of the outstanding stock. This is the final step towards becoming a more shareholder – and market – friendly company, following the implementation of a sensible dividend policy, and it may lead to inclusion in the ASX300.
This renewed focus on shareholder friendliness has helped propel Village’s share price up 16% since Village Roadshow: A profitable ride? from 06 Dec 12 (Long Term Buy – $3.80) and 3% since we downgraded to Hold on 14 Jan 13 (Hold – $4.27). Like one of Village’s movies, the story is unfolding nicely so far, and considering the share price rise we’re very content to HOLD.