Everyman Media (LSE: EMAN) claims that it is “redefining cinema” by offering customers a more bespoke and comfortable experience than that provided by peers such as Cineworld (LSE: CINE).
The strategy seems to be working. Today the company reported that for the 52 weeks to the end of December, revenue grew 37% to £40.6m, and cinema admissions expanded 32% to 2.2m.
It appears the bulk of this growth was at existing premises. Specifically, today’s release notes that just two Everyman venues opened during 2017, expanding the portfolio by 10% to 22 sites. The company also undertook some significant renovations of its existing portfolio throughout the year, including adding to new screens to its Muswell Hill and Oxted venues.
A premium offering
Everyman’s strength is its premium offering, which consumers are more than happy to pay for according to the firm’s figures. Last year the company recorded an average box office ticket price of £11.28, and average food and beverage spend per head of £5.97. These figures are more than double those reported by Cineworld. For the period to the end of June 2017, Cineworld achieved an average ticket price per head of £5.27 and an average retail spend per person of £2.04.
That said, nine of Everyman’s 22 screens, or 40% of the current portfolio, are based in London where prices are higher than the rest of the UK, but so are operating costs. Still, Everyman is more profitable than Cineworld overall with a gross profit margin of 60% compared to Cineworld’s 26%.
And when it comes to growth, the young upstart has an edge over its older, more established peer.
Set for growth
Everyman exchanged contracts on nine news sites during 2017 funded through an equity raise of £17m in October. Another deal was completed in January of 2018 when the firm exchange contracts on a freehold site in Crystal Palace, London for £3.3m. (With only £7m of debt on the balance sheet at year-end, and a net cash balance of £11.4m, I wouldn’t rule out more of these deals in 2018.)
As these new venues begin to open, City analysts believe net profit could grow by as much as 40% in 2018 and earnings per share could hit 4.9p. Based on these numbers the shares are trading at a forward P/E ratio of 39.4, which looks expensive, but when you consider the company’s cash-rich balance sheet and rapid growth rate, it is clear the business deserves a high multiple.
Meanwhile, following the acquisition of US cinema group Regal, (completed in February) City analysts are expecting Cineworld’s revenue to jump 225% in 2018, and net profit is expected to double. However, because the company relied on a rights issue to finance part of the deal, earnings per share are only expected to grow by 22% thanks to the dilution.
Further, the group is drowning in debt following the merger, with analysts estimating that net debt to earnings before interest, taxes, depreciation and amortisation will be 4 times this year, leaving management little room for manoeuvre if things don’t go to plan.
Considering all of the above, even though shares in Cineworld look cheaper than Everman (the shares are trading at a forward P/E of 12 and support a dividend yield of 4.4%) I’d stay away from the group. Everyman appears to offer a better all-round proposition for investors.
