Adam Muller

Adam Muller
Contributor since: 2011
There are several factors that can lead to EBITDA growth diverging from box office.
You have to look at price, concession per patron, and screen count. Carmike purchased a 40 screen chain last year in Q4. By my count Carmike will average 2,245 screens in Q3 2012 vs 2,217 in Q3 2011, a 1.3% gain. This can make up for approximately half of the negative 3% Q3 box office decline.
It's also worth noting that CKEC could be a great acquisition for a chain like RGC. In addition to additional scale helping RGC negotiate lower film rental costs, CKEC has approximately $20mm in annual G&A, a material portion of which could be captured as synergies. I believe an acquirer like RGC or CNK could pay well into the $20 range and still have the deal be accretive to earnings. While I do not recommend investing in CKEC (or any company for that matter) just on the potential for a take-out, it does add to the margin of safety of the investment.
A very well written article and I agree completely. I don't believe the bomb threat had a material impact given i) it was dealt with quickly and ii) some movie-goers were likely not even aware of it.
My model conservatively suggests Q3 EPS of $0.21 assuming no increase in average ticket price or concessions per patron, attendance per screen down 3% vs Q3 2011 but the average screen count is 2,245 vs 2,217 in Q3 2011 (Carmike acquired MNM in Oct 2011). As a result of the increased screen account my model suggests aggregate attendance falling only 1.8%.
I don't expect ticket prices to increase in the quarter given the success of the Dark Knight, which was not available in 3D. Also, given the adult nature of the film concession per patron growth was likely also muted, although it may be greater than 0%, which is upside to my $0.21.
I also agree that the movie slate in Q4 is extremely strong. Further, as a long term investor, I want to take a view on the movie slate for the next few years. With a Hobbit film each December for 3 years, Iron May 3 and the Hangover 3 in 2012, a Super Man reboot produced by Christopher Nolan in 2012, sequels to Thor and Captain America in production in 2013 and 2014, respectively, a new Hunger Games film in November 2013, 2014, and 2015, sequels to the Avengers and Avatar in 2015, there are ample tent pole movies that will generate significant buzz and box office.
Carmike is a great long-term way to participate.
You are neglecting to list Carmike Cinemas (CKEC), which in additional to benefits from the 2012 box office, is less expensive than Regal or Cinemark, operates in smaller cities and towns with less alternative entertainment options, and is a potential acquisition target for either Regal or Cinemark.
Cotton is a very small input in Joe's denim product. Even a significant increase in cotton pricing has a minimal impact on Joe's margins.
Thanks for the comment and I hope it plays out the way you describe. Fashion is tricky and they need to stay on top of trends, etc. It wasn't that long ago that they got stuck with a lot of jeggings inventory. They also need to be disciplined in store openings and carefully select their locations. For example, the SoHo New York store was a long time coming but has been exceptional. I like the product and think the strategy makes sense. You make an excellent point that at these levels it is largely a retail stock - it will take some time before it can be appealing to institutional buyers, but I'm rooting for it.
JC Penney canceled their dividend in May when they reported Q1 earnings.
Thanks for the question. I believe the sell off is technical in nature as distressed debt investors who acquired their equity in Tronox and event-driven investors roll out of the stock now that it has i) completed the Exxaro deal, ii) listed on the NYSE, and iii) announced the near-term capital deployment plan. The shareholder base turnover could continue in the short-term. However, with the quarterly dividend now known and offering a significant yield dividend investors should be taking a very hard look at the company. Further, while some short-sighted investors may view the lack of a near-term special dividend as a negative, I believe that management's decision to advance a significant buy back because of the weakness in the stock is a very bullish signal.
Thanks for the comment. I think about it as follows. DAR will sell the fat input to the JV at the market price. So from a fat revenue perspective DAR is agnostic as to whether it sells the fat to the JV or on the open market. However, the JV then turns that fat into bio fuel,s sells it at a profit, and DAR makes 50% of that profit. Finally, since DAR is selling to the JV, that "supply" is no longer available to the current buyers - reducing the supply, assuming demand remains constant, will increase the price. Hope this makes sense.
I would not be surprised if some people shorted as it listed on the NYSE for technical reasons. Perhaps high yield investors that have equity would look to sell post-listing. Other post bankruptcy equities like LYB have traded this way, but eventually they get out and the stock migrates towards its intrinsic value. The key is to be patient.
Thanks for the comment. The 100% iPhone ownership is just an assumptions - the idea being that to be on iCloud you have at least 1 Apple device...whether it's an iPhone or an Ipad is not as relevant to the analysis. The focus should be on what percent of iCloud users have more than 1 device...2,3,4, etc. And the conclusion is that most probably do or will and those devices will get upgraded over time as new versions are released.
Thanks for the question. I'm not certain what you mean by income from the IPO. Certainly the balance sheet as of June 2012 will reflect the cash proceeds from the IPO, but this is just the cash raised by the company from selling ownership in the company and is not earnings. The focus will be on Q2 sales growth.
I think your short thesis is misguided and dangerous. Joes Jeans reported last week and had strength in their wholesale business. TRLG may show stabilization or even growth. Further, cotton is a very small component of the cost of high end jeans and should not have a material impact either way. TRLG also has a strong balance sheet. I believe the largest risk would be if they missed a fashion trend and sales fell as a result. My impression is they they are on trend. With strong retail sales I think a short on TRLG is risky.
Interesting article, but you don't seem to quantify anything. How does Lionsgate get paid for Anger MAnagment? What do they get per episode? What do they get for each Breaking Dawn DVD? I agree with your premise but it's important to understand how it translates to earnings and cash flow for LGF.
Thanks for the note. I am happily still long FXCM and think that there is more growth to come. I am very bullish on the deal they did with eTrade and the downward direction of the yen vs the USD is likely resulting is significant F/X volume in Japan, one of the largest F/X markets. It's important to note that the U.S. is a small market for FXCM relative to Asia, where F/X is considered an asset class.
Excellent point. Further near-term upside.
Thanks for the comment. Obviously I'm bullish on the name and have a reasonably large position.
If you see a 430 call and the stock increases to 460, your common stock gets called away. You capture the upside until it hits the strike (you keep the premium from the option you sold) and then you out. So if the call premium was $11, Apple would have to increase beyond $441 before you are losing out on the upside move, but you are protected on the downside by the $11 premium you took in.
On a discounted cash flow basis if Apple simply continues to generate $33bn of FCF/yr the value of that cash flow stream (assuming a 3% perpetuity growth rate representing inflation) is greater than the price Apple trades at today. This holds true at a 2% perpetuity growth rate as well.
Apple generated $33 billion of free cash flow in fiscal 2011. Just look at the 10K in the cash flow statement.
I totally agree. If Apple were to simply maintain it's current rate of cash flow generation it would still be worth more than where it trades today. Apple is unique in that it is a growth and a value stock and is cheap on either metric.
I hope you are right. It's too bad that January options expiration is before earnings.
Thanks for the comment. That is a very fair point that I hadn't considered. Theoretically I stand by my analysis, but, as you point you, there are practical restrictions given Apple's $430 share price. It would still apply to someone who already owns 100 shares or more and wants to play earnings.
I would like to add one comment to my TiVo post. I saw an article this morning suggesting the Apple's iTV could have DVR capabilities. This is just a rumor but should it be true it is possible they would run into TiVo's intellectual property. An announcement be made that Apple's has licensed IP from TiVo would be extremely positive for TiVo and is not baked into my analysis or any analysis on TiVo that I have seen. Again, let me emphasize that this is a rumor and it is possible Apple will devise a work-around any existing IP, but nonetheless I thought it was worth mentioning.
Sam, I certainly will revisit post earnings and the first number I will look for in their release will be MSO subscriber adds. It may take a few quarters to really see how subs will ramp but I believe that is the key metric to assess the potential value of the core business. Further, if they were to settle with Verizon and the economic surprise on the upside that would also be a reason to revisit.
Sam, I apologize for not acknowledging my prior posting. Note that I am not saying to sell or short TiVo, I am simply suggesting that I am no longer comfortable with the margin of safety of making an investment today. A lot has changed since my prior post. They have settled with AT&T and we have seen another quarter of results. Rumors regarding Apple's iTV product had not begun. I still think that buying TiVo today is an option on the success of their core business, I just am not comfortable with the potential return vs the risk.
My numbers are based on a fully diluted share count taking into account stock options, unvested restricted share units, etc.
I believe we will see a dividend in 2012, I'm just not sure if it will be commensurate with Q1 earnings.
Thanks for your time. Take $10.50 for Q1 and apply the same earnings progression as FY 2011. It's illustrative but within the realm of the possible especially if they introduce a new iPad and an LTE iPhone 5 in the current fiscal year.
I don't understand your disclosure. Are you long puts meaning that you are effectively betting against the company via put options? Or have your sold puts making you long DAR? thanks
No problem. The stock is down and they have not delivered the past few quarters as the women's wholesale business and been very poor. The write down was related to some of their first full price stores. The entered some leases right before the financial crisis, which turned out to be terrible timing. Their new New York store is doing great and gives them a successful retail store model to build on. Stock is trading well below book value (and at tangible book value). I think there is more value there but stock likely won't move much until they show a turnaround by, at the very least, stopping the decline in the women's wholesale business. If you are patient I think it could turn out to be a good investment in the long run. I still think it's a great brand, but management needs to execute to extract value from the brand.
Thanks for the question. I agree with ~$1 for this year. On a forward basis if they grow another 20% they would get to $1.20. It's illustrative. It should trade based on a forward P/E. On a backward looking basis it is also very cheap looking at LTM EBITDA.
New iPhone converts (many from RIMM) are further upside - very good point. I agree that the quarter is going to be very strong.