AMC Entertainment IPO Is Not A Hobbit Fantasy

Dec.15.13 | About: AMC Entertainment (AMC)

AMC Entertainment Holdings (NYSE:AMC), the popular movie theater owner and operator with principal offices in Leawood, Kansas, plans to raise $350.0 million in an upcoming IPO. The firm will offer 18.4 million shares at an expected price range of $18-$20 per share. If the IPO can reach the midpoint of that range at $19 per share, AMC will command a market value of $1.8 billion. See S-1

AMC filed on August 30, 2013.
Lead Underwriters: BofA Merrill Lynch, Citigroup Global Markets
Underwriters: B. Riley & Co, Barclays Capital, Barrington Research Associates, Credit Suisse Securities, FBR Capital Markets, HSBC Securities, LOYAL3 Securities, Piper Jaffray , Stifel Nicolaus , and Wedbush Securities.

Summary
AMC is an iconic chain of American movie theaters that has been in business for nearly a century (founded in 1920) and has been responsible for innovations including the Multiplex and Megaplex movie theater formats. As of September 30, 2013, the firm owned and/or operated 343 movie theaters in North America, for a total of 4,950 screens. AMC holds the number one or number two position in terms of market share in major cities including New York, Los Angeles, Chicago, Philadelphia, and Dallas.

Valuation
AMC offers the following figures in its S-1 balance sheet for the nine months ending September 30, 2013:

Revenue: $2,036,451,000
Net Income: $84,783,000
Total Assets: $4,326,866,000
Total Liabilities: $3,476,158,000
Stockholders' Equity: $848,897,000

For the nine months ended September 30, 2013, AMC posted total revenues of $2.0 billion, Adjusted EBITDA of $335.2 million and earnings from continuing operations of $80.5 million; for the twelve months ended September 30, 2013, the firm posted total revenues of $2.7 billion, Adjusted EBITDA of $450 million and earnings from continuing operations of $81.6 million. The firm boasted impressive attendance per screen of 41,900 and admissions gross profit per screen of $179,000 for calendar 2012, both figures amongst the best of its peers.

Business
Although there is still significant fragmentation in the movie theater industry, there is evidence to suggest that the business is beginning to consolidate; in 2012, the top four exhibitors in terms of box office revenue generated approximately 62% of box office revenues, up from 35% in 2000. AMC's major competitors include Regal Entertainment Group (NYSE:RGC), Cinemark Holdings (NYSE:CNK), Cineplex Inc, and Carmike Cinemas Inc (NASDAQ:CKEC).

Management
President and CEO Gerardo I. Lopez has served in his current positions since March 2009. Mr. Lopez previously served as Executive Vice President of Starbucks Coffee Company (NASDAQ:SBUX) and as President of the Handleman Entertainment Resources division of Handleman Company.

Mr. Lopez serves on the boards of directors of Recreational Equipment, Inc., Brinker International, DCIP and Open Road Films. He holds a B.S. in Marketing from George Washington University and a M.B.A. in Finance from Harvard Business School.

Conclusion
We are very optimistic on this IPO and rate it a buy in the proposed price range of $18 to $20.

AMC will likely see market success on the basis of name recognition alone, and its massive North American market share and the company's profitability certainly won't hurt. We're encouraged by the firm's continuing dedication to improving the customer experience at its theaters (AMC has invested over $120 million into its facilities over the past two years), as theaters must now market the experience that their locations offer in order to compete with more convenient, less expensive home viewing options like Redbox-AKA Outerwall (NASDAQ:OUTR)-and Netflix (NASDAQ:NFLX).

Compared to its peers, AMC led in revenues per audience member, average ticket price, and beverage sales per audience member in calendar 2012, indicating that consumers have been willing to pay for the experience that AMC offers.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AMC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.