The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
Regal (NYSE:RGC) Q4 quarter-to-date box office is trending up 18%. October was up 10%, led by Taken 2, and November month-to-date is up 24% due to new releases Skyfall and the final Twilight film. The coming weekend may be relatively weak due to a dearth of new releases, but December should be in line with our raised estimates as TheHobbit compares positively to last year’s Sherlock Holmes: A Game of Shadows.With that said, our estimate assumes some deceleration in December.
We raised our Q4 estimates to reflect solid box office trends, and our 2013 estimates to reflect the acquisition. We revised our Q4 estimates for revenue to $710 million from $657 million, for Adjusted EBITDA to $155 million from $123 million, and for EPS to $0.24 from $0.14. We revised our 2013 estimates for revenue to $3.0 billion from $2.9 billion, Adjusted EBITDA to $644 million from $623 million, and EPS to $1.10 from $1.02.
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Notwithstanding a likely very solid Q4, Q1:13 is up against a strong +24% comp. We expect a negative comp in Q1.
On Thursday, Regal announced that it will acquire 25 theaters including 301 screens. Regal will acquire the theaters from Great Escape Theaters for $91 million in cash for a multiple of ≈5.5x cash flow. The acquisition price includes the assumption of debt and working capital, although the press release did not specify the amount. We assume that the acquisition will close at the end of Q4, implying that Regal will incur acquisition-related costs in the current quarter, but will begin benefiting from the additional screens no earlier than Q1:13. We expect the acquisition to be accretive to Adjusted EBITDA by ≈$20 million in 2013.
On Thursday, Regal also announced a special cash dividend of $1.00 in addition to its regular quarterly dividend. The special dividend was declared ahead of potential tax rate increases, and is investor friendly. However, we note that the acquisition and special dividend combined will cost ≈$280 million, while $2 billion of debt remains on Regal’s balance sheet. We estimate that cash/share will decline to ≈$0.30 in Q4 from $1.62 in the most recently reported quarter.
Maintain our NEUTRAL rating, but raising our price target to $16 from $15 to reflect higher 2013 earnings from screen growth. After accounting for Regal’s ownership stake in National CineMedia, we arrive at a $16 price target. This reflects a 6.3x EV/adjusted EBITDA multiple on our 2013 estimates, in line with its historical multiple and its peers, reflecting a stable business with high debt levels.
Michael Pachter is an analyst at Wedbush Securities.
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