As I mentioned yesterday, former Northlake long Regal Entertainment shares caught a downgrade after reporting an inline quarter late last week. The stock moved up the first day but after the downgrade on Friday more than eliminated the gains. I have yet to read the downgrade but I suspect it had to do with the loss of fundamental momentum due to the stiff box office comparisons from May through August. RGC will show good growth this year thanks to acquisitions, a growing contribution from its partial ownership of National Cinemedia (NCMI), and a 53 week year (the extra week is a holiday week and could add 7-8% to EBITDA for the year). However, organic growth will be limited because to the comparison to last summers record-breaking summer box office….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-04-28 14:57:162008-04-28 14:57:16Regal Catches A Downgrade Off Average Quarter
I posted the following on Real Money before the open on February 27th explaining my decision to sell client holdings of Regal Entertainment. By way of background, Doug Kass is a major figure on Real Money and appears regularly on CNBC. He manages hedge funds that are dedicated to selling short. This means he bets on stocks going down. Over the time period that Northlake has been long Regal Entertainment, Doug was short most of the time.
I hope Doug Kass is sitting down when he reads this but I sold my position in Regal Entertainment yesterday. Doug and I have been back and forth on the merits of Regal for well over a year. For Doug it is a thematic short as he sees the movie theatre in long-term decline. For me it was a total return play in a stock that was too cheap because of what I believe to be the inaccurate myth that the box office is in long-term decline.
I think we both ended up right. I know at times Doug was short when the stock was moving between the upper teens and low $20s. I’ve been long since April 27th, 2006. I purchased the stock at $20.28 and sold it at $20.90 for a gain of just 3%. However, I have also collected 7 quarterly dividends of 30 cents and one special dividend of $2.00. Add that $4.10 to my side of the ledger and the total return is 23%. The S&P 500 is up less than 6% since then with dividends pushing the return to about 9%.
Regal turned out to be a pretty good investment for my clients but the reason I am quoting the returns is to remind subscribers that there are a lot of ways to make money on a stock. Total return investing is not as sexy as producing big capital gains but if you are going to make 23% who cares how you get there….
Prior to its 4Q07 earnings report last Thursday, shares of Regal Entertainment had already recovered from the sharp sell-off driven by poor box office trends during the fourth quarter. A strong start to the box office in 2008 also was helping. The recovery gained steam following the report which was inline with expectations and a first view of 2008 guidance. Here is a brief recap:
Regal Entertainment guided to the high end of analysts estimates for 2008. In 4Q, operating trends were exactly as expected given the box office performance. 4QEPS came in 4 cents ahead of consensus on better than expected margin performance and lower than expected interest expense. The tax rate was down but still stood at a normal 37%. The conference call had a positive tone.
Based on the new guidance, I think the stock can trade to $21-22, up 16%, which along with a current yield of 6.5% makes this an interesting total return situation. The key near-term risk is the tough March comp at the box office due to the popularity of the movie 300 a year ago.
The upside should get a boost from rising analyst estimates for 2008 based on the new guidance and the strong start to the box office this year. I know of two analysts who are estimating 1Q box office to be down 9-10%. It is hard to see how anything short of a small gain will be the ultimate outcome with the box office up 19% through this past weekend.
Comps get particularly tough in late June so my current plan is to sell into strength I anticipate over the next few months.
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-02-11 12:41:082008-02-11 12:41:08In Line Quarter and Positive Guidance Clears The Way for Regal
Not much to say about Regal Entertainment’s third quarter earnings report. Given the well-chronicled strength in the box office, Regal produced very good results as anticipated. Occasionally, Regal and theatre operators are unable to translate box office strength to earnings. This was not the case in the third quarter for Regal.
The company is optimistic that earnings and box office strength will continue in the fourth quarter even thought the box office is performing poorly in October. The big releases this year are all in November and December. Last year’s holiday product generally performed poorly so comparisons are easy. For example, in 2006, weekly box office totals were in the $125-150 million range until early November. Blockbuster releases during holiday periods led to several weeks of over $200 million and one of over $300 million for the rest of the year. In other words, if comparisons are favorable for the holiday films the lagging box office so far in the fourth quarter can quickly turn to positive comparisons.
I looked over a few analyst models and the consensus estimates. Box office admissions revenue in the fourth quarter is forecast to be flat to down slightly and overall revenue growth, which includes concessions and in theatre advertising, is expected to be flat to up slightly. I think the bar is set appropriately low such that current box office weakness will not be an issue for the stock….
Several stocks in the Northlake portfolio have had newsworthy items over the past week. Here is a recap of the latest news, all of which I think is positive. Disney (DIS) completed the sale of almost all of its radio operations to Citadel Broadcasting (CDL). DIS shareholders received .0768 shares of CDL for each share of DIS they owned. DIS received $1.35 billion in cash from CDL. I plan to hold CDL and will look to add to the small positions if the shares come under pressure as DIS shareholders sell their small holdings. The profile of a DIS and CDL shareholder would seem to have little in common which could lead to lots of selling. Given that the DIS deal about doubles CDL shares outstanding, I think supply-demand imbalances could put some downward pressure on CDL. That was not the case yesterday when CDL rallied on the first day of post-closing trading. CDL has a current yield of over 5% which should limit downside….
Yesterday several brokerage firms initiated coverage on recent IPO Cinemark Holdings (CNK), the third largest operator of movie theatres. Not surprisingly, the underwriters are providing favorable coverage including new buy recommendations. A few brokers expressed their preference for CNK over Regal Entertainment (RGC), the largest theatre operator and one of my long positions. The analysts argue that CNK is cheaper than RGC and due its geography it offers more upside potential though organic growth of new theatres. Additionally, CNK has more room for upside in its dividend than RGC given the 51% payout ratio. CNK has a current yield of 3.7% vs. 5.3% for RGC.
These are valid points as CNK trades at under 8 times 2008 estimated EBITDA while RGC trades closer to 9 times. Additionally, most models have no screen growth for RGC while CNK is expected to increase its screen count by about 4% per year taking advantage of population growth in its largest markets of Texas and California, while adding theatres in major metropolitan areas where its is underrepresented. Finally, a little over 20% of CNK’s screens are in Latin America where long-term growth opportunities could be substantial. The organic growth is clearly seen in 2008 estimates (box office comparisons will be extremely tough) where most analysts have RGC’s EBITDA flat to down vs. a 2-4% gain for CNK. It does seem inconsistent for CNK to trade at a discount given the higher internal growth, especially in an industry where everyone pretty much offers the exact same product.
Nevertheless, while I need to do further work on CNK, my initial thought is that I still prefer RGC….
Regal Entertainment (RGC) shares rose 4% following better than expected 1Q07 earnings. RGC was able to convert the strong 1Q box office into better margins and EBITDA which bodes very well for the next two quarters when the box office should be record breaking. The shares have now regained more than the $2 special dividend paid earlier in April with proceeds of the National Cinemedia (NCMI) IPO. I think box office momentum can drive RGC to $23-24 at which point I expect to be a seller as comps will be tough in 2008. Since I started buying RGC for clients a little over year the company has paid $3.20 in special and quarterly dividends on top of $1.60 in share appreciation. The total return is 24%. Not bad for the supposedly comatose movie theatre industry.
RGC rode a 7% gain in domestic box office to a gain of over 8% in its own 1Q admissions revenue as a favorable mix of PG-13 and R-rated films led average ticket prices to be higher than expected. Coupled with good expense control, the revenue upside pushed operating margins a little above expectations as well. Better than expected EBITDA was the result and this is the key financial measure investors in theatres focus on….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2007-04-27 13:03:522007-04-27 13:03:52Regal Entertainment Has A Great First Quarter
Regal Entertainment (RGC) and NII Holdings (NIHD) report before the open on Thursday. I’ll be visiting with clients out of town most of Wednesday and Thursday so I won’t be able to get any comments on the results until Friday. The following brief previews should help you put the numbers in perspective….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2007-04-25 08:48:472007-04-25 08:48:47Regal Entertainment and NII Holdings 1Q07 Earnings Previews
The underwriters of the National Cinemedia (NCMI) IPO launched coverage this week. NCMI is the largest company in the rapidly growing cinema advertising industry and is 22% owned by Regal Entertainment (RGC). RGC is widely held throughout the Northlake client base.
In general, analysts are looking for modest additional upside in this well received IPO. The story is that cinema advertising has lots of room to grow because inventory sellouts can rise and CPMs are too low. Furthermore, an argument can be made that cinema advertising has room to take share of the advertising pie. In the UK this medium represents 1.4% of all advertising expenditures vs. just 0.2% in the US. Given studies showing that cinema advertising has very high recall rates and the fact that younger consumers make up the largest groups of ticket buyers, it seems plausible that cinema advertising will be one of the fastest growth areas of ad budgets.
NCMI further benefits as it gains access to more theatres….
Regal Entertainment (RGC) announced that it would be using a portion of the proceeds it received from the IPO of National Cinemedia (NCMI) to pay a special dividend of $2.00 to RGC shareholders. This action continues a pattern of special dividends paid by RGC which along with an annual dividend of $1.20 and modest appreciation have allowed RGC shareholders to earn a compound annual total return of 15% on their shares since the company came public in 2004.
I think the newly announced special dividend will kick off another year of 15% total returns and strongly recommend investors be long RGC. The shares are especially valuable in the current uncertain market environment as the rally in the bond market has made the 6% current yield from the annual dividend even more valuable. Yesterday on Real Money, Jim Cramer was talking about stepping up to stocks with a 4% current yield. I emailed him all of my writing on RGC and told him he could find 6% here!
Most people write off RGC because they believe the movie theatre is dying a slow death due to alternative forms of digital entertainment. I believe those concerns are over hyped and point to last year’s rebound in the box office to a gain of over 3% as evidence. However, even if you believe theatres are dying, you can’t overlook the fact that they are cash cows with high free cash flows…..
