Company Reports

We trim our fair value estimate for EVT by 4% to AUD 13.50 per share, mainly reflecting our tapered expectations for hotels. While the culprit of the 11% fall in first-half fiscal 2024 group EBITDA (pre-AASB 16) to AUD 96 million was Thredbo, it was the lackluster hotel performance that drove the slight downgrade to our valuation.

EVT earnings are generated from cinemas, hotels, the Thredbo ski resort, and a portfolio of property investments. The cinema division is dependent on discretionary expenditure and popularity of films from studios, both Hollywood and foreign markets. The emergence of home entertainment systems, broadband-enabled streaming services and the shortening of the release window from film to home format pose an earnings risk longer-term. Cinema exhibitors such as EVT are focused on enhancing the moviegoing experience as a point of difference.

We retain our AUD 14 per share fair value estimate for EVT. This is despite reducing our normalized group EBITDA forecasts by an average of 10% over the next two years. It reflects our mea culpa for underestimating the current cost pressures across EVT’s businesses and overestimating the near-term delivery of efficiency gains from management’s transformation efforts. Erratic trading due to economic uncertainty and unfavorable weather (for Thredbo) also punctured our previously high near-term expectations.

EVT earnings are generated from cinemas, hotels, the Thredbo ski resort, and a portfolio of property investments. The cinema division is dependent on discretionary expenditure and popularity of films from studios. The emergence of home entertainment systems, broadband-enabled streaming services and the shortening of the release window from film to home format pose an earnings risk longer-term. Cinema exhibitors such as EVT are focused on enhancing the moviegoing experience as a point of difference.

Twelve months on from when coronavirus first hit our shores, no moat-rated leisure shares have all rallied strongly to be at or above our intrinsic assessments. Ardent Leisure is up 343% to AUD 0.93 (versus our AUD 0.55 fair value estimate), Event Hospitality is up 50% to AUD 11.23 (AUD 11.20 fair value estimate) and Flight Centre is up 98% to AUD 17.63 (AUD 18.00 fair value estimate). The recovery trade has been buoyed by easing pandemic fears, the gradual vaccine rollout and an accommodative equities market.

We review Amalgamated Holdings prior to the release of its fiscal 2014 result in August. Of its four main segments, Cinema Exhibition Australia and Hotels are expected to perform strongly, but are likely to be offset by weakness in Cinema Exhibition Germany and Thredbo. Overall, we believe that this will translate into slightly negative earnings growth for fiscal 2014. However, we believe earnings are set to rebound in fiscal 2015. Cinema Exhibition Germany suffered from a particularly weak film line up in the first four months of fiscal 2014, while Thredbo had one of its worst snow seasons in decades. While these segments have been volatile in the past, we expect improvement from these trough conditions in fiscal 2015.

Amalgamated Holdings reported a soft first-half fiscal 2014, which we expected following the weak first-quarter update last November. Net profit after tax, or NPAT, for the half declined 16% over the prior year period with cinema exhibition in both Australia and Germany suffering from a weak line-up, despite signs of an improvement in the second quarter. Germany was particularly impacted, suffering a 36% decrease in earnings before interest and tax, or EBIT, for the half, while Australia grew EBIT 15%, on the back of increased advertising revenue and cost savings. We expect some turnaround in the second half on the back of a stronger schedule of new film releases, however, NPAT for full-year fiscal 2014 is likely to be down on fiscal 2013.

At its annual general meeting, Amalgamated Holdings reported a soft first-quarter fiscal 2014. Net profit after tax, or NPAT, for the quarter declined 37% during the same period of the prior year as its cinema exhibition segments suffered from a weak line-up. Germany alone accounted for approximately 60% of the NPAT decline. Compounding the weak cinema performance, the Thredbo ski resort suffered from one of the worst ski seasons in 25 years compared with excellent skiing conditions in the prior year. The hotel segment was more positive with the new QT brand driving growth off a low base, while the Rydges brand was relatively flat. While first-quarter fiscal 2014 was disappointing, we are cautious about extrapolating this trend for the full year. Cinema earnings can vary significantly from quarter to quarter depending on the line-up and a number of films scheduled for release in the second and third quarters of fiscal 2014 are expected to perform strongly, including the second instalments of The Hunger Games and The Hobbit film franchises. A number of new hotel openings should also drive growth for fiscal 2014.

Amalgamated Holdings' fiscal 2013 net profit after tax of AUD 82.9 million is in line with our forecasts; the 9.8% increase in an environment of constrained consumer spending is admirable. Weakness in the hotel segment, reflecting lower demand in mining states and the launch of QT in Sydney, was offset by continued growth in the cinema segment. Despite relatively flat box-office takings, cinema earnings before interest and tax, or EBIT, increased 11.5% to AUD 60 million. Without a record-breaking release like Avatar, Amalgamated continue to drive growth by improving the service offering. The successful strategy of rolling out digital projectors, theatre refurbishments and new gold class experiences are helping drive attendance numbers and support increased ticket prices and merchandising revenue. No change to our AUD 7.50 fair value estimate. Reinvestment and expansion in cinema and hotel assets, as well as an eventual improvement in consumer and business confidence, underpin our forecasts for modest long-term earnings growth.