Surprised you didn't mention Mercer International (O-MERC), the second largest producer of Northern Bleached Soft Kraft (NBSK) market pulp in the world with some of the world's youngest and most efficient mills (See Company Slide Shows at www.mercerint.com/s/Pr...). Mercer is the most levered publicly traded company to movements in pulp prices. Mercer’s 10-K (www.sec.gov/Archives/e...) on page 48 reveals operating leverage sensitivities yields a change in Operating EBITDA of approximately €10.4MM for every $USD 10/Tonne NBSK price move and a revenue delta of €8.0MM for every €0.01 change in exchange rate vs the USD.
Lastly, related to your post above, Mercer was the first Canadian pulp producer to receive GRANTS under Canada's Green Energy Transformation program that pay to complete Mercer's $CAD55mm Celgar Energy Project. This project will generate electricity from a 48MW generator burning Celgar’s black liquor pulp byproduct beginning in Q4 2010 the excess of which will be sold under a 10yr contract with BC Hydro (See www.sec.gov/Archives/e...) for incremental EBITDA of around $CAD 25mm/yr. This STEADY incremental EBITDA stream enhances Mercer's enterprise value substantially and could be securitized to facilitate future financing needs.
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Two questions - 1) This is a streaming service option, requiring a constant internet connection for the two hours and not a download, transport ,and watch later service right? - Cause that would seem to be in direct competition to itunes movie rental and sales now wouldn't it? 2) The "movies" available for streaming are subject to a long delay window from release not just in the theaters but don't the movie distributors slap additional delay from the most popular movies so that they may sell/rent them at walmart and costco on dvd and even to blockbuster and redbox (even if they are then rented out by them)? It would seem the distributors would even rather sell a bunch of new release dvd's to netflix long before they would license any streaming product to netflix to give away in an all you can eat offering.
Nice add-on distribution service to existing netflix product offering but not in and of itself industry or blockbuster/red box killer.
In addition to all these cash-flowing cinemas, Reading Int'l (RDI) has 14.5MM sq ft of 16MM sq ft of owned real estate that remains to-be-developed (thus not presently generating cash flow). The plan is to develop and build out this long-held real estate into something either cash flowing (to pay your desired dividend one day) or to be sold for one-time sizable gain. It makes NO sense at this time to pay any dividend. Cash flow is being used to develop out and add value to this existing real estate. Further, as we have suggested to company management, and they are apparently now listening, buying back and retiring stock of RDI at these prices is the same as buying real estate at pennies on the dollar. However this real estate, being already known to the company with some parcels already having approved development plans, there is much less risk than buying new unknown parcels.
The company has reinvested its growing cinema (and real estate) cash flow into the improvement and development of its substantial real estate parcels for their eventual generation of cash flow or sizable gain on sale of the completed asset.
The benefit promoted for sale of Taser guns seems to be "less than lethal" immobilization of assailant. Yet, Taser has run into its own death issues. It would seem to me that the new pepper gun from Mace Security International (O-MACE) would be a better solution for law enforcement. It is more effective at greater distances, providing increased safety for officers, and it has far lower chance of accidental excessive injury to the suspect. Here is a link to a short video on the new pepper gun. www.youtube.com/watch?...
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While I like theater exhibition, because of the sector's resiliency in another recession, I don't believe it qualifies for "aggressive growth" as you wrote. I do think that certain international markets offer greater growth potential than the US market due to better screen growth potential and likely depreciation of the dollar vs those economies. US growth will come from the rollout to a greater mix of 3D showing and the related increase in avg box office ticket and maybe some extra tickets sold and, more importantly, consolidation that create substantial economies of scale and margin improvements. Many of the giant US chains have so much market share in a local market that they now have anti-trust barriers to growth via acquisition. Not only do you get slower growth from the larger US chains but, with their pre-existing analyst coverage, you end up buying them at a higher valuation multiples vs. under-covered exhibitors. A higher multiple burdens your investment with lower upside opportunity and greater downside risk.
That is why I favor internationally diversified exhibitor, Reading International (O-RDI), over the giant already analyst-followed chains. Reading is a large exhibitor in faster growth Australia (4th) and New Zealand (3rd), but only 12th largest in the US. I would like my exhibitor to be able to benefit from the coming industry consolidation by being able to acquire existing cinemas in almost any market. While Reading has 70% market share in Hawaii, it otherwise should not have a problem acquiring geographically neighboring regions and has plenty of market share room to gain. I would rather benefit from multiple expansion from having an undiscovered investment discovered by analysts. Reading presently has NO analyst coverage whatsoever. When you subtract out the value of long-held and highly appreciated real estate from RDI's enterprise value, you are getting Reading's growing theater chains for less than 2X EBITDA, a fraction of the multiple that shares of Cinemark (CNK) , Regal (RGC) or Carmike (CKEC) with their PRE-existing analyst coverage cost you.
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I agree if you went to COLLECT on the loan book right now it would be worth pennies on the dollar. However, loan books get monetized not only through their direct sale but also through indirect sale. Should World (WRLD) do an equity or equity-like offering, that has the effect of "monetizing" the loan book for the existing shareholders. There are many ways in which sponsors of this company could skin the cat.
Carmike Cinemas' Strong Earnings Beat Doesn't Make It a Safe Bet on Hollywood [View article]
I entirely agree that the quality of films has and will always be the main driver of box office growth and whether analyst expectations are or are not met. Note how every research report on exhibitors EVERY quarter talks of the great exciting new films coming up. They will talk about tough comparisons (like vs Avatar at the end of this year) but otherwise company officials and analysts never say that the new movies coming out are crap. That is in the hands of the viewing public. So predicting attendance, cash flow and results isn't so easy for this sector (though its a lot easier than a commodity pulp or oil/gas Co.) this could pose a problem for cinema exhibitors whose sites are all lease liability. Remember 2000-2002 period when most of the industry went into bankruptcy as they obsoleted their miniplexes with megaplexes?
With this risk in mind, our preference for Reading International (RDI) as cinema exhibitor comes not only from the factor cited above - no existing analyst coverage creating excessive expectations - but also from the ownership of hard real estates underlying AND surrounding many of Reading's cinemas. In many instances in australia and new zealand, they also own shopping centers where their owned/operated Reading multiplex is an anchor tenant. Should movies take a multiple period of bad results that become secular, Reading could always convert the real estate to alternative use rather than the exhibitors, who the analysts presently cover, that are stuck with lease liability with no alternative use options. Case in point for those in New York City who might remember Sutton Hill Cinema (the city cinema chain that Reading owns) that was on 57th between 2/3rd aves. It is now a 34 story 66-unit luxury condo tower known as Place 57. Reading still owns 25% of this property - though all condos and retail space has sold out for huge profits over the past few years. Reading's other New York City assets include Cinema 123 (3rd ave btwn 59/60th across from bloomies), the off-broadway Union Square, Minetta Lane and Orpheum theaters - AND THE LAND UNDERNEATH!! Some goes for the Royal George Theater in Chicago - and the land underneath!!, etc.
Reading's long -held real estate is on its books for far LESS than what it has appreciated to be worth. That is what we call "margin of safety".
oh by the way Reading International (O-RDI) should report Q4 ended december 2010 any day now. Perhaps it will get some of the run the other exhibitors did? But then - there are no sell-side analysts to order everyone to buy!
Carmike Cinemas' Strong Earnings Beat Doesn't Make It a Safe Bet on Hollywood [View article]
For those willing to do the work and take simply one extra step of subtracting out value (any conservative value will do) of non movie theater assets (real estate), Reading International (RDI) is trading for much lower multiple on cinema segment EBITDA than Carmike (CKEC). Reading is the 4th largest exhibitor in Austrailia, 3rd largest in New Zealand and, with recent consolidations and addition of new screens, about the 12th largest in the US.
Reading has long-held real estate highly appreciated (vs book value) that is not presently generating cash flow. These real estate parcels are being developed and will provide either cash flow generation (increase EBITDA) or direct sale (paydown on the EV).
Subtraction of Real Estate value in RDI reduces the EV/EBITDA multiple to fractions of CKEC. Some measures would support that one buys the cinema segment for free.
An extra investment oppty lies in the fact that RDI presently has NO analyst coverage. (They don't seem to want to take the simple extra step in the valuation process, noted above. ) While more shares of RDI are in its float than CKEC, it presently trades far fewer shares/daily due to this lack of sell side following. Mark Cuban took a large position in RDI several quarters after he took one in CKEC and has added to his fortune. Perhaps he has a consistent and good crystal ball to copy his CKEC investment success? Reading is to report its Q4 earnings and provide a 10K with updated detail on its real estate assets in the next two weeks.
The A shares (RDI) are non-voting and with around 21.1MM shares outstanding and are much more liquid than the B shares (RDIB) which are voting but with only 1.5MM shares outstanding. The RDI shares are the class of Reading's stock in the RU 2000 and Micro-cap indices and trade around 30K shares a day.
The voting B shares are very closely held with the Cotter family controlling around 69% of the issue, Mark Cuban owning around 14%, Pico Holdings with 7% and Dimensional and Gabelli funds holding 5%, leaving only around 100K shares floating. They trade by appointment only between a very wide bid/ask spread.
Frankly, given the much greater liquidity of the RDI shares and the fact B class owners can only comprise a minority, there is little reason for the B to presently bid at a premium to the RDI shares.
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Don't agree with your prediction of rise of USD vs. australian dollar AUD for reasons of the AUD central banks sounding more dovish, giving the dollar a relative boost. Australia's central bank has been the first to RAISE raise rates and has done so already THREE times. The Aussie economy has been adding jobs for the past several months and its resource laden geography close to china makes it likely this currency maintains or even extends its strength vs. us dollar.
1) Since the US dollar skyrocketed last year during Q3 08, this year’s Q3 09 was the final quarter of negative yr/yr currency headwinds for Reading. Despite those headwinds, Reading’s operating results were good. In local currency, Reading’s Australia and New Zealand cinema segments enjoyed continued revenue growth, in the case of Australia, growing better than US industry box office trends. Global box office releases for the remainder of 2009 and early 2010 (summer in Aus/NZ) look appealing. Going forward, for at least the next few quarters, yr/yr currency impacts on Reading’s operating cash flow, should finally become a tailwind.
2) Good operating results and the quarter’s foreign currency improvement catapulted Reading’s book value/share to over $5. We believe this $5/share book value still greatly understates the current fair value of Reading’s Australian, New Zealand, New York and Chicago real estate, held for more than a decade that has since been upzoned and some developed. Thus, we feel true book value is well more than $5.
3) Reading maintains substantial liquidity and an interest in accretive acquisitions of cash flowing assets. Sept 30 cash and marketable securities balances were $23.1MM and Reading has a combined $26.6MM of undrawn credit availability on its Australian and New Zealand Credit facilities. The company has filed of a universal shelf registration statement for up to $100MM of debt and warrants for debt and “units”, etc in addition to equity to enable Reading to act quickly to structure and finance growth transactions.
Other items of note :
4) The Malulani litigation settlement gain, reported below-the-line as other income, is actually a recovery of several quarters of above-the-line s,g&a litigation expense. “Apples to Apples” analysis would call for this current quarter’s gain to be viewed as part of operating income.
5) Prior year 2008 revenues included multiple quarter lump sum recognition from completion of screen advertising revenue contract in Q3 2008.
6) During the quarter, Reading re-listed both classes of its common stock from the AMEX to the NASDAQ exchange, maintaining the RDI symbol and adopting the RDIB symbol for the Class B voting stock. The RDI shares trade as a component of both the Russell 2000 small cap and Microcap indicies.
the author ought research and learn about and then add that IP's earnings benefited from a one time windfall from the black liquor tax subsidy this past year that expires at end of the year.
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Lastly, related to your post above, Mercer was the first Canadian pulp producer to receive GRANTS under Canada's Green Energy Transformation program that pay to complete Mercer's $CAD55mm Celgar Energy Project. This project will generate electricity from a 48MW generator burning Celgar’s black liquor pulp byproduct beginning in Q4 2010 the excess of which will be sold under a 10yr contract with BC Hydro (See www.sec.gov/Archives/e...) for incremental EBITDA of around $CAD 25mm/yr. This STEADY incremental EBITDA stream enhances Mercer's enterprise value substantially and could be securitized to facilitate future financing needs.
How Apple Will Help Netflix Become a Hyper Growth Company [View article]
1) This is a streaming service option, requiring a constant internet connection for the two hours and not a download, transport ,and watch later service right? - Cause that would seem to be in direct competition to itunes movie rental and sales now wouldn't it?
2) The "movies" available for streaming are subject to a long delay window from release not just in the theaters but don't the movie distributors slap additional delay from the most popular movies so that they may sell/rent them at walmart and costco on dvd and even to blockbuster and redbox (even if they are then rented out by them)? It would seem the distributors would even rather sell a bunch of new release dvd's to netflix long before they would license any streaming product to netflix to give away in an all you can eat offering.
Nice add-on distribution service to existing netflix product offering but not in and of itself industry or blockbuster/red box killer.
Reading International: Strong Box Office Growth Fuels Record Revenues [View article]
In addition to all these cash-flowing cinemas, Reading Int'l (RDI) has 14.5MM sq ft of 16MM sq ft of owned real estate that remains to-be-developed (thus not presently generating cash flow). The plan is to develop and build out this long-held real estate into something either cash flowing (to pay your desired dividend one day) or to be sold for one-time sizable gain. It makes NO sense at this time to pay any dividend. Cash flow is being used to develop out and add value to this existing real estate. Further, as we have suggested to company management, and they are apparently now listening, buying back and retiring stock of RDI at these prices is the same as buying real estate at pennies on the dollar. However this real estate, being already known to the company with some parcels already having approved development plans, there is much less risk than buying new unknown parcels.
Reading International: Strong Box Office Growth Fuels Record Revenues [View article]
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That is why I favor internationally diversified exhibitor, Reading International (O-RDI), over the giant already analyst-followed chains. Reading is a large exhibitor in faster growth Australia (4th) and New Zealand (3rd), but only 12th largest in the US. I would like my exhibitor to be able to benefit from the coming industry consolidation by being able to acquire existing cinemas in almost any market. While Reading has 70% market share in Hawaii, it otherwise should not have a problem acquiring geographically neighboring regions and has plenty of market share room to gain. I would rather benefit from multiple expansion from having an undiscovered investment discovered by analysts. Reading presently has NO analyst coverage whatsoever. When you subtract out the value of long-held and highly appreciated real estate from RDI's enterprise value, you are getting Reading's growing theater chains for less than 2X EBITDA, a fraction of the multiple that shares of Cinemark (CNK) , Regal (RGC) or Carmike (CKEC) with their PRE-existing analyst coverage cost you.
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With this risk in mind, our preference for Reading International (RDI) as cinema exhibitor comes not only from the factor cited above - no existing analyst coverage creating excessive expectations - but also from the ownership of hard real estates underlying AND surrounding many of Reading's cinemas. In many instances in australia and new zealand, they also own shopping centers where their owned/operated Reading multiplex is an anchor tenant. Should movies take a multiple period of bad results that become secular, Reading could always convert the real estate to alternative use rather than the exhibitors, who the analysts presently cover, that are stuck with lease liability with no alternative use options. Case in point for those in New York City who might remember Sutton Hill Cinema (the city cinema chain that Reading owns) that was on 57th between 2/3rd aves. It is now a 34 story 66-unit luxury condo tower known as Place 57. Reading still owns 25% of this property - though all condos and retail space has sold out for huge profits over the past few years. Reading's other New York City assets include Cinema 123 (3rd ave btwn 59/60th across from bloomies), the off-broadway Union Square, Minetta Lane and Orpheum theaters - AND THE LAND UNDERNEATH!! Some goes for the Royal George Theater in Chicago - and the land underneath!!, etc.
Reading's long -held real estate is on its books for far LESS than what it has appreciated to be worth. That is what we call "margin of safety".
oh by the way Reading International (O-RDI) should report Q4 ended december 2010 any day now. Perhaps it will get some of the run the other exhibitors did? But then - there are no sell-side analysts to order everyone to buy!
Carmike Cinemas' Strong Earnings Beat Doesn't Make It a Safe Bet on Hollywood [View article]
Reading has long-held real estate highly appreciated (vs book value) that is not presently generating cash flow. These real estate parcels are being developed and will provide either cash flow generation (increase EBITDA) or direct sale (paydown on the EV).
Subtraction of Real Estate value in RDI reduces the EV/EBITDA multiple to fractions of CKEC. Some measures would support that one buys the cinema segment for free.
An extra investment oppty lies in the fact that RDI presently has NO analyst coverage. (They don't seem to want to take the simple extra step in the valuation process, noted above. ) While more shares of RDI are in its float than CKEC, it presently trades far fewer shares/daily due to this lack of sell side following. Mark Cuban took a large position in RDI several quarters after he took one in CKEC and has added to his fortune. Perhaps he has a consistent and good crystal ball to copy his CKEC investment success? Reading is to report its Q4 earnings and provide a 10K with updated detail on its real estate assets in the next two weeks.
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Reading International: Strong Q3 Earnings [View article]
The voting B shares are very closely held with the Cotter family controlling around 69% of the issue, Mark Cuban owning around 14%, Pico Holdings with 7% and Dimensional and Gabelli funds holding 5%, leaving only around 100K shares floating. They trade by appointment only between a very wide bid/ask spread.
Frankly, given the much greater liquidity of the RDI shares and the fact B class owners can only comprise a minority, there is little reason for the B to presently bid at a premium to the RDI shares.
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Andrew Shapiro
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The Q3 earnings full press release may be found on RDI's website at www.readingrdi.com/pdf...
I note the following salient points:
1) Since the US dollar skyrocketed last year during Q3 08, this year’s Q3 09 was the final quarter of negative yr/yr currency headwinds for Reading. Despite those headwinds, Reading’s operating results were good. In local currency, Reading’s Australia and New Zealand cinema segments enjoyed continued revenue growth, in the case of Australia, growing better than US industry box office trends. Global box office releases for the remainder of 2009 and early 2010 (summer in Aus/NZ) look appealing. Going forward, for at least the next few quarters, yr/yr currency impacts on Reading’s operating cash flow, should finally become a tailwind.
2) Good operating results and the quarter’s foreign currency improvement catapulted Reading’s book value/share to over $5. We believe this $5/share book value still greatly understates the current fair value of Reading’s Australian, New Zealand, New York and Chicago real estate, held for more than a decade that has since been upzoned and some developed. Thus, we feel true book value is well more than $5.
3) Reading maintains substantial liquidity and an interest in accretive acquisitions of cash flowing assets. Sept 30 cash and marketable securities balances were $23.1MM and Reading has a combined $26.6MM of undrawn credit availability on its Australian and New Zealand Credit facilities. The company has filed of a universal shelf registration statement for up to $100MM of debt and warrants for debt and “units”, etc in addition to equity to enable Reading to act quickly to structure and finance growth transactions.
Other items of note :
4) The Malulani litigation settlement gain, reported below-the-line as other income, is actually a recovery of several quarters of above-the-line s,g&a litigation expense. “Apples to Apples” analysis would call for this current quarter’s gain to be viewed as part of operating income.
5) Prior year 2008 revenues included multiple quarter lump sum recognition from completion of screen advertising revenue contract in Q3 2008.
6) During the quarter, Reading re-listed both classes of its common stock from the AMEX to the NASDAQ exchange, maintaining the RDI symbol and adopting the RDIB symbol for the Class B voting stock. The RDI shares trade as a component of both the Russell 2000 small cap and Microcap indicies.
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