Regal Waits For Summer Blockbusters

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

No big surprises in Regal’s (NYSE:RGC) Q1. Revenue was $643 million, vs. our estimate of $640 million, and consensus of $654 million. Adjusted EBITDA was $114 million, in line with our estimate, vs. consensus of $111 million. EPS was $0.14, vs. our estimate of $0.12, and consensus of $0.14. The company did not provide forward guidance.

Adjusted EBITDA was in line with our estimates. Admissions revenue per average screen trailed the industry primarily due to lower average ticket prices, as IMAX screens underperformed during the quarter. Concessions per cap were up 3 percent y-o-y driven by improvements in beverage and concession volume as well as expanded menus in over 50 theaters. Other operating revenues were well above our estimates, increasing over 20 percent y-o-y driven by higher vendor marketing revenue resulting from renegotiated agreements during the quarter, as well as gift card breakage revenue realized from a strong Q1:12. Adjusted EBITDA was in line with our estimate as well-managed film rental costs were offset by higher concession costs related to increased commodity costs.

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Regal continues to make accretive acquisitions. Regal completed its acquisition of 43 theaters, including 513 screens on April 1, for $191 million in cash and $47 million of assumed lease obligations. Similar to Regal’s existing footprint, the acquired theaters are roughly 40 percent 3D-capable; however, they currently do not contain IMAX (NYSE:IMAX) screens. Regal is committed to future accretive acquisitions, and believes the environment will remain favorable for accretive transactions for the next 12-24 months primarily due to the expensive transition to digital projectors.

We maintain our FY:13 estimates for revenue of $3.08 billion and for adjusted EBITDA of $616 million, with EPS going to $1.00 from $0.98, reflecting Q1 results. We are maintaining our FY:14 estimates for revenue of $3.23 billion, for Adjusted EBITDA of $666 million, and for EPS of $1.12.

We expect Q2 to end up 5 percent despite a slow April. Q2 quarter-to-date box office is trending down 12.5 percent. However, May and June include blockbuster releases, Iron Man 3, The Great Gatsby, Star Trek Into Darkness, Fast & Furious 6, Hangover Pt 3, Man of Steel, Monsters University, and World War Z.

Maintaining our NEUTRAL rating and $17.50 price target. After accounting for Regal’s ownership stake in NCM, we arrive at a $17.50 price target. This reflects a 6.4x EV/adjusted EBITDA multiple on our 2014 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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