AMC Entertainment Holdings, Inc.

AMC Entertainment Holdings, Inc. (NYSE: AMC) is the largest movie exhibition company in the United States, the largest in Europe and the largest throughout the world with approximately 950 theatres and 10,500 screens across the globe. It is involved in the theatrical exhibition business and owns, operates in theatres located in the United States and Europe. The company provides best-in-class amenities such as plush, power recliners, MacGuffins full bars, AMC Dine-In Theatres, premium presentation. 

Key highlights 

• Completed Equity Program: Recently, the company announced that it has completed its 11.550 million share at-the-market (“ATM”) equity program on June 3, 2021. AMC raised approximately USD 587.4 million of new equity capital, before commissions and fees, at an average price of approximately USD 50.85 per share. Adding USD 587.4 million of new equity over the existing USD 658.5 million would raise the total equity to USD 1.246 billion in the second quarter and this would substantially strengthen and improve AMC’s balance sheet, providing flexibility to respond to potential challenges and capitalize on attractive opportunities in the future.

• Raise New Equity from Mudrick Capital: On June 1, 2021, AMC announced that it has entered into an agreement to raise USD 230.5 million of cash from the sale of equity at a price of approximately USD 27.12 per share to Mudrick Capital Management, L.P. in exchange for 8.5 million shares of AMC. The cash proceeds would be used for acquisitions of additional theatre leases, as well as investments to enhance the consumer appeal of AMC’s existing theatres. In addition, with these funds in hand, AMC intends to continue exploring deleveraging opportunities.

• Impaired cash flow from operating activities: The company posted cash outflow from operations at USD 312.9 million in Q1 2021, increased by 70.1%, against USD 184.0 million in the previous corresponding period. The adjusted free cash outflow increased to USD 316 million from USD 220 million in Q1 2020 showcasing company’s insufficiency to generate additional cash from its business operations.

• Margin Deterioration: During Q1 2021, the company posted gross margins of 78.6% v/s Industry Median of 53.6%, however other margins reflected poor performance by the company, wherein EBITDA margin for the company was negative 207.0% v/s Industry median of 10.4%, Net margin recorded by the company was negative 382.5% v/s Industry Median of negative 3.1%.

• Declining Theatre Attendance and Average Screen: During Q1 2021, the total theater attendance declined to 88.8% to 6,797 from 60,495 in Q1 2020, wherein U.S. markets attendance declined 84.3% to 6,239 and International markets attendance slumped by 97.3% to 558. Additionally, total average screen count reduced by 24.2% to 6,724 from 8,873 in Q1 2020. The decline was mainly attributed to COVID-19 pandemic which prompted film distributors to delay or alternatively distribute films, deterred customers from attending theatres and resulted in the temporary suspension of operations at the theatres in U.S. markets and International markets.

• Bearish Technical Indicator: On the daily price chart, the leading momentum indicator, 14-day RSI is trading in a steep overbought zone at 77.4. This suggest that the stock price may correct or consolidate from the current level.

Technical Chart, Analysis by Kalkine Group 

Financial overview of Q1 2021 (In millions of USD)

Source: Company 

• In Q1 2021, the company reported revenue of USD 148.3 million, against USD 941.5 million in the previous corresponding period. Total revenues decreased 84.2%, or USD 793.2 million, during Q1 2021 as compared to Q1 2020. The decrease in revenue was primarily attributable the admission segment, where admissions revenue decreased 87.8%, or USD 498.5 million primarily due to an 88.8% decrease in attendance, partially offset by an 8.9% increase in average ticket price. The decrease in attendance was primarily due to the COVID-19 pandemic.

Food and beverage revenues decreased 82.6%, or USD 238.0 million and other theatre revenues decreased 66.4%, or USD 56.7 million during Q1 2021.

• Total Operating costs and expenses decreased USD 2,351.5 million to USD 576.1 million during the quarter primarily due to decline in the impairment of long-lived assets of USD 1,851.9 million. Furthermore, operating expenses declined due to the decrease in attendance and a decrease in average screens operated, partially offset by an increase in foreign currency translation rates.
• The company generated operating loss of USD 427.8 million compared to loss of USD 1,986 million in pcp due to above stated reasons.
• Primarily due to above discussed rationales the company clocked a net loss of USD 566.9 million, against a loss of USD 2,176.3 million in pcp.
  

Risk associated with investment

The Company’s financial performance is mostly dependent on theater attendance and average ticket price, the impact of the COVID-19 virus on the motion picture industry, long term suspension of operations at theatres, increase in cost due to General Data Protection regulation (“GDPr”), and California Consumer Privacy act (“CCPa”) would dampen the company’s revenue and profitability. 

Stock recommendation 

The revenue for the Movie Theaters industry in USA declined by 77.2% in 2020 due to the COVID-19 pandemic and social distancing measures, which have left theaters sitting empty for months. Generally, theatre industry generates significant amount of revenue from the summer blockbuster season. In 2020, however, theaters missed out on this revenue and more due to social distancing measures forcing industry operators to close. Although, the industry expecting partial recovery in 2021 as industry operators would limit the audience capacity until herd immunity is reached. Following the same AMC is operating at 585 domestic theatres with limited seating capacities of between 15% and 60% and operating at 97 international leased and partnership theatres, with limited seating capacities, representing approximately 27%. Also, company is focusing on strengthening its liquidity position and balance sheet. On the daily price chart, RSI is hovering in steep overbought zone suggesting a price correction or consolidation from current level. On the Valuation front, the stock of AMC trading at an EV to Sales of 9.1x on an NTM basis, which is significantly higher than the industry (Hotels & Entertainment Services) median of 3.2x. Hence, considering the aforementioned facts, we recommend an ‘Expensive’ rating on the stock at the last closing price of USD 51.34 on June 03, 2021.

One-Year Technical Price Chart (as on June 03, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.