Village Roadshow Ltd (ASX: VRL) is a leisure conglomerate, owning and operating the namesake Village Cinemas, Village Film Distribution and various theme park brands across Australia. The company was founded in the 1950s and has developed a vertically integrated film and distribution network over the years, making it a powerhouse for entertainment.
It is controlled by the Kirby family of Victoria and recently revealed its 2016 half-year results, which came in below expectations, causing a near 30% slump in share price.
Tuesday’s further fall makes Village priced on par with fellow competitor Ardent Leisure Group(ASX: AAD) and Village is a buy in my opinion. 2016 half-year results Headline results
Village reported an ordinary set of headline numbers in its first-half results for 2016. The group reported a rise in earnings (EBITDA) of 12.6% to $77.9 million for the half, but recorded a net loss of $3.5 million for the period (down from $13.3 million profit in 1H15). The result was mostly a function of its one-off material loss of $25.5 million (due to changes in equity accounting on its investments) and a slight increase to corporate expenses. Silver lining
Pleasingly, net profit after tax for the half (from continuing operations) was up 45.1% to $22 million. The jump in profit was driven by an 11% increase to revenues following strong performance from its cinema exhibition and theme park assets. The group also announced increased cash flows from operations, alongside plans to strengthen its theme park division (with further details being provided in an announcement in the next few months). Dividend
The board kept Village’s interim dividend steady at a fully-franked 14 cents per share, trading ex-dividend on 11 March 2016. There is also a likelihood of further capital returns with the board indicating that a special dividend of 10 cents per share might be considered in the 2017 financial year. This reinforces management’s commitment to return excess cash to shareholders, making Village a potential yield play over the medium term. Outlook
Management provided mixed guidance on Village’s various operating divisions, but remained upbeat about the overall outlook of the group. Whilst expecting some weakness in its film distribution division, management expects its cinema exhibition segment to outperform its record breaking 2015 full-year on the back of many eagerly awaited movies slated for release later this year.
Like Ardent Leisure reported in its recent trading update, Village’s management expects robust growth in its theme parks division, with good weather and new attractions driving traffic numbers to its venues. Coupled with the depreciating Australian dollar, Village should continue to benefit from increased inbound tourism amounting to a bumper trading season for the remainder of the financial year. Foolish takeaway
Despite remaining cognisant of the fact that Village operates in an industry driven predominantly by consumer sentiment, I believe the current share price undervalues Village’s integrated business model and positive outlook. With Village being majority controlled and run by its founders it is likely that management will continue to actively pursue growth given their vested interests.
Although the first-half results presented last week were poor, I believe the underlying business continues to perform well. Accordingly, with the share price plunging further on no news, I believe it might be a good time to pick up shares in this well-managed company before it trades ex-dividend.
VRL Price at posting:
$5.08 Sentiment: Hold Disclosure: Held
