Everyman Media Group PLC: Too risky for the return

Everyman Media Group PLC (LON:EMAN) is the UK’s fifth-largest cinema operator using box office revenue as a benchmark, but it gets a mere 2.53% of that market revenue as a niche playerr. By far the biggest share goes to the dominant players – Cineworld, Odeon, and Vue multiplexes.

That said, AIM-listed Everyman has a growing portfolio of venues dotted around the country: 26 (pipeline: 14); 84 screens; 7420 seats. 

Somewhat defying expectations, given the intrusion of online entertainment channels, cinema visits have grown, and in 2018 were the highest since 1970 (~177 million UK cinema admissions). The company took a growing portion of those admissions, with takings up 25% on an annualised basis. 

Everyman has performed well by some measures:  Revenue up 28%(y/y); Operating Profit up 44% to £2.9m (2017: £1.6m); Profit after tax up 38%: £2,037,000 (2017: £1,268,000).

Earnings per share have also risen 29% y/y but at 2.89p (2017:2.04p), they are a poor return on equity (average 2018 share price of 179p). Selected other financials of the company are as below:

• New 5-yr loan facility of £30m (£13m undrawn)
• £17m equity issued 2017
• Debt/Equity 13%
• Current ratio 0.62
• Market Price/Tangible book value =2.9x
• Intangibles: 20% of BV of equity

Conclusion: 

For: Broad distribution of venues; growth oriented; growing admissions and revenues and profits; no currency exposure; funding in place to realise its next phase of expansion. 

Against: Alternative entertainment channels (e.g. streaming) pose perhaps the greatest threat to the company’s future. Will consumers continue to choose bricks and mortar cinemas over new channels?  Perhaps they are not mutually exclusive (just as bookshops co-exist with digital alternatives). The record admissions in 2018 would suggest there is room for both. The company faces many other real external threats to its performance, any one of which could dent its revenue and profits. 

For instance - film piracy; timing of film releases causing revenue volatility month/month; extreme weather deterring visitors; extraordinary events distracting visitors (e.g., sporting events); reduced consumer spending (where going to the cinema is a luxury, many visitors who needs to save money are likely cut it from their list of affordable expenses); 

Overall: A price-war by the dominant multiplexes is likely to wipe out tiny Everyman Group, or leave it vulnerable to takeover following a price correction. Being a UK-centric business and solely cinema-driven, the company lacks the safety nets of geographic and revenue diversification. The return to shareholders is poor, and given the current set of circumstances, would be a stock to avoid.