AMC - AMC Entertainment Holdings

[hasilp89]

Awful price action here, over the past few week I have trimmed my position a good amount. I think it could still work long term but with everything going on and Bond getting pushed back my thesis has been broken.  Hope things find a bottom as the weather warms up - and I have started adding to MCS and CNK a bit here.

 

Not holding out for the $200m stock buyback? - 1/3 of the company at these prices.

[stahleyp]

It'll be interesting if AMC survives this. A ton of debt but I would imagine A list is highly profitable right now. :P

[Foreign Tuffett]

At what point do we all pull a Walter Sobchak and "mark it zero?" All US locations are closed. I would assume all European locations are closed. A List memberships are paused, so run rate revenue is probably zero.

 

Aron is out there saying things like "the [cinema] industry has to get liquidity from somewhere.....we all have expenses and none of us have revenue.” At 12/31 they had $1.93 billion in current liabilities vs $673.1 million in current assets.

 

Unless the pandemic ends imminently (doubtful) or the government bails them out in a major way, I don't see how this isn't a donut.

 

 

[Guest roark33]

Check the short interest and borrow rate, a lot of people agree. 

 

Additionally, even when they open back up the theaters, the studios are going to wait quite some time to start releasing their big movies.  I can't imagine Mulan comes back until the fall.  Basically, the entire summer is cancelled at this point because the studios won't want to release the movies until the ghost is clear.  Check out China cinema numbers, people don't just come back on day one. 

[given2invest]

They were toast before this happened and this is going to be way too much to overcome.

[Spekulatius]

They were toast before this happened and this is going to be way too much to overcome.

 

If this takes long enough the movie industry will just release movie to view at home. If one studio breaks the mold and it‘s a success, others will follow and from then on, the industry would be forever changed. I would guess that movie theatre‘s will still exist, but there will be far fewer of the, and they will be like entertainment hubs with various activities of choice.

[given2invest]

They were toast before this happened and this is going to be way too much to overcome.

 

If this takes long enough the movie industry will just release movie to view at home. If one studio breaks the mold and it‘s a success, others will follow and from then on, the industry would be forever changed. I would guess that movie theatre‘s will still exist, but there will be far fewer of the, and they will be like entertainment hubs with various activities of choice.

 

I like going to movies.  And they make Disney a ton of money.  I've never believed they would try and push the at home business at the expense of the theaters.  I just think the last few years, it's all changed.  There are just a handful of movies worth seeing in theaters.  And the rest should be on a streaming plan for free.

 

 

[Guest roark33]

The movie theaters will still exist, but the equity for AMC seems like it is a donut from here.

[Broeb22]

They were toast before this happened and this is going to be way too much to overcome.

 

If this takes long enough the movie industry will just release movie to view at home. If one studio breaks the mold and it‘s a success, others will follow and from then on, the industry would be forever changed. I would guess that movie theatre‘s will still exist, but there will be far fewer of the, and they will be like entertainment hubs with various activities of choice.

 

I don’t know that studios would ever choose to give up the massive revenues from releasing movies via the theater. It’s a form of price discrimination. If person A really Likes a movie, they may pay $10+ to see it one time in a “cool” format. If person B likes a movie but less than person A, they may wait for it to come out on the Apple Store, buy it for a different than the theater price there, and watch it an infinite number of times, etc. until you’re watching it as part of your streaming/cable subscription.

 

 

[chrispy]

The margins for film companies are around 70 percent for direct to consumer while closer to 25 for theatre. Add onto that people may not want to go to theatres for awhile and you'll see clever DTC methods and the successful ones will stick.

 

The theatres hold no cards right now.

[Guest roark33]

The studios margins for theaters is usually 55/45 favoring the studios, Sony and Disney command up to 60%. 

 

 

 

[dbuch]

They have 4 months of liquidity from cash and lines of liquidity. It is almost certain that the gov't will provide life lines in the form of loans to the theaters, restaurants, airlines, cruise ships, retailers etc. Those loans may come with strings attached like equity warrants, agreements for no stock repo or dividends but I think it will be enough to get them through this. Hard to ask for substantial strings when the government essentially mandated that all of these industries shut down. Either the govt provides liquidity or they have many millions of unemployed and thousands of companies in bankruptcy.

 

They generate $300-$400mm of free cash flow after maintenance capex. So assuming they spend the next 5 years paying down debt, you would have about $4B debt vs $1B EBITDA and assume the same free cash flow. You would have a business earning at least $2.50/share call it $25 fair value.

 

That's a 7 bagger or 48% annual return from here. But maybe i'm wrong and it's a zero. Still good upside/downside in my mind. 

[Foreign Tuffett]

 

 

https://variety.com/2020/film/box-office/amc-theatres-furloughs-employees-coronavirus-pandemic-1203545081/

[Spekulatius]

 

 

https://variety.com/2020/film/box-office/amc-theatres-furloughs-employees-coronavirus-pandemic-1203545081/

 

Furlough without pay whatsoever? isn’t it better to get laid off and get some unemployment benefits, as long as you have a spouse covering health insurance?

[Guest roark33]

They have 4 months of liquidity from cash and lines of liquidity. It is almost certain that the gov't will provide life lines in the form of loans to the theaters, restaurants, airlines, cruise ships, retailers etc. Those loans may come with strings attached like equity warrants, agreements for no stock repo or dividends but I think it will be enough to get them through this. Hard to ask for substantial strings when the government essentially mandated that all of these industries shut down. Either the govt provides liquidity or they have many millions of unemployed and thousands of companies in bankruptcy.

 

They generate $300-$400mm of free cash flow after maintenance capex. So assuming they spend the next 5 years paying down debt, you would have about $4B debt vs $1B EBITDA and assume the same free cash flow. You would have a business earning at least $2.50/share call it $25 fair value.

 

That's a 7 bagger or 48% annual return from here. But maybe i'm wrong and it's a zero. Still good upside/downside in my mind.

 

 

I think the free cash flow here is just mythical. 

 

Also, you have to think about what happens over the next 6 months, how quickly do studios start to bring back their big movies and risk low attendance. Black Widow, Mulan, when do these return, 2021? 

[hasilp89]

They have 4 months of liquidity from cash and lines of liquidity. It is almost certain that the gov't will provide life lines in the form of loans to the theaters, restaurants, airlines, cruise ships, retailers etc. Those loans may come with strings attached like equity warrants, agreements for no stock repo or dividends but I think it will be enough to get them through this. Hard to ask for substantial strings when the government essentially mandated that all of these industries shut down. Either the govt provides liquidity or they have many millions of unemployed and thousands of companies in bankruptcy.

 

They generate $300-$400mm of free cash flow after maintenance capex. So assuming they spend the next 5 years paying down debt, you would have about $4B debt vs $1B EBITDA and assume the same free cash flow. You would have a business earning at least $2.50/share call it $25 fair value.

 

That's a 7 bagger or 48% annual return from here. But maybe i'm wrong and it's a zero. Still good upside/downside in my mind.

 

 

I think the free cash flow here is just mythical. 

 

Also, you have to think about what happens over the next 6 months, how quickly do studios start to bring back their big movies and risk low attendance. Black Widow, Mulan, when do these return, 2021?

 

Important to look at that downside scenario but there are two sides to the story.

 

Maybe: When this thing is lifted people are going to be screaming to get back out to do things. $12 cinema ticket is about the cheapest thing you can do besides for the $ menu at MCDS. People will go back to the movies. Don’t tell me you don’t want to watch live action Mulan as soon as possible. Going back to comments about studios going direct, we don’t know the full economics of it - theater is 50-60% GM with no overhead and huge global reach, Disney+ seems like there’s no distribution cost and high margin but they’re carrying overhead on app, marketing etc, and it doesn’t have the same global reach yet (not arguing it won’t one day) - even if it has 50m subscribers, there’s probably 4bn people out there that can get to a movie theater in 30 mins, you’re just gonna throw that target market out?

Then you’ll argue that people have been laid off don’t have the money. If the stimulus gets out people are going to be richer than ever. $1200 cash check, state unemployment ranges anywhere from $300-$700 per week federal is providing $600 per week - people aren’t gonna wanna go back to work, heck I might lay myself off for that.

 

I know this is tongue in cheek but the reality is no one knows. We can all argue one side or the other. Make it a 5% position and forget about it. keep buying BRK and then go for a walk with your family.

[DanielGMask]

They have 4 months of liquidity from cash and lines of liquidity. It is almost certain that the gov't will provide life lines in the form of loans to the theaters, restaurants, airlines, cruise ships, retailers etc. Those loans may come with strings attached like equity warrants, agreements for no stock repo or dividends but I think it will be enough to get them through this. Hard to ask for substantial strings when the government essentially mandated that all of these industries shut down. Either the govt provides liquidity or they have many millions of unemployed and thousands of companies in bankruptcy.

 

They generate $300-$400mm of free cash flow after maintenance capex. So assuming they spend the next 5 years paying down debt, you would have about $4B debt vs $1B EBITDA and assume the same free cash flow. You would have a business earning at least $2.50/share call it $25 fair value.

 

That's a 7 bagger or 48% annual return from here. But maybe i'm wrong and it's a zero. Still good upside/downside in my mind.

 

 

I think the free cash flow here is just mythical. 

 

Also, you have to think about what happens over the next 6 months, how quickly do studios start to bring back their big movies and risk low attendance. Black Widow, Mulan, when do these return, 2021?

 

Important to look at that downside scenario but there are two sides to the story.

 

Maybe: When this thing is lifted people are going to be screaming to get back out to do things. $12 cinema ticket is about the cheapest thing you can do besides for the $ menu at MCDS. People will go back to the movies. Don’t tell me you don’t want to watch live action Mulan as soon as possible. Going back to comments about studios going direct, we don’t know the full economics of it - theater is 50-60% GM with no overhead and huge global reach, Disney+ seems like there’s no distribution cost and high margin but they’re carrying overhead on app, marketing etc, and it doesn’t have the same global reach yet (not arguing it won’t one day) - even if it has 50m subscribers, there’s probably 4bn people out there that can get to a movie theater in 30 mins, you’re just gonna throw that target market out?

Then you’ll argue that people have been laid off don’t have the money. If the stimulus gets out people are going to be richer than ever. $1200 cash check, state unemployment ranges anywhere from $300-$700 per week federal is providing $600 per week - people aren’t gonna wanna go back to work, heck I might lay myself off for that.

 

I know this is tongue in cheek but the reality is no one knows. We can all argue one side or the other. Make it a 5% position and forget about it. keep buying BRK and then go for a walk with your family.

 

I'm not familiar with this company but consider this industry to be at severe risk. This pandemia is going to change our psyche in a lot of ways, I don't see myself visiting a movie theater any time soon and I do enjoy going to the movies and used to go at least twice a month.

 

Getting back to life as usual is going to take some time, maybe more than a year if a vaccine is not widely available anytime soon. An enclosed space where you have to sit for a couple of hours with dozens or hundreds of people is not an ideal space for a world where there's a more than usual lethal virus for which we don't have a vaccine.

[BG2008]

The bonds are at 30 cents on the dollar. That's what you guys should be looking at.  If it trades up to par somehow (don't know how) but you get 3x.  If it files, you could potentially end up with the equity. 

[JayGatsby]

 

 

https://variety.com/2020/film/box-office/amc-theatres-furloughs-employees-coronavirus-pandemic-1203545081/

 

Furlough without pay whatsoever? isn’t it better to get laid off and get some unemployment benefits, as long as you have a spouse covering health insurance?

Furloughs are covered by unemployment in Colorado. I think all states. Colorado changed the law, allowing people to stay "job attached", which historically was only for the construction industry. Incentives arguably aren't the best for everyone, but allows companies to put people on unemployment temporarily during the shutdown.

[orthopa]

Not to change the subject but IMAX looks like its prepared to weather the storm based on the balance sheet. The future of the industry remains to be seen but selling some long dated puts in this name maybe a way to get paid to wait.

[Spekulatius]

The bonds are at 30 cents on the dollar. That's what you guys should be looking at.  If it trades up to par somehow (don't know how) but you get 3x.  If it files, you could potentially end up with the equity.

 

My rule of thumb is that I stop looking at equity when I can get hold of bonds of the same name at <50c on the dollar.  At 30c on the dollar, the bonds have become basically equity and the stock has become a far out of the money call option.

[heth247]

The bonds are at 30 cents on the dollar. That's what you guys should be looking at.  If it trades up to par somehow (don't know how) but you get 3x.  If it files, you could potentially end up with the equity.

 

My rule of thumb is that I stop looking at equity when I can get hold of bonds of the same name at <50c on the dollar.  At 30c on the dollar, the bonds have become basically equity and the stock has become a far out of the money call option.

 

I heard that during BK, even if you are a (minority) bond holder, you can still be robbed by the big holders by not allowing you participate. Have that happened to you before?

[Guest roark33]

AMC hired Weil, which basically means a bankruptcy filing is a sure thing. 

[Gregmal]

Wasn't it just weeks ago when everyone got super excited because management bought some stock? My general rule of thumb is to tread very, very carefully with anything(excluding real estate companies obviously) that has >50% of its EV in the debt column. And never touch anything where its greater than 75%.

 

If you start with that sort of capital structure handicap, you're behind the ball. If you dont start there, and end up like that, then you're obviously doing a pretty shitty job or the business just sucks. At $6 or whatever when management was buying, this was what? 90% debt on the EV side? Why even bother? You rarely hear of companies who's capital structure consists of 100% equity ending up like this...

[Spekulatius]

The bonds are at 30 cents on the dollar. That's what you guys should be looking at.  If it trades up to par somehow (don't know how) but you get 3x.  If it files, you could potentially end up with the equity.

 

My rule of thumb is that I stop looking at equity when I can get hold of bonds of the same name at <50c on the dollar.  At 30c on the dollar, the bonds have become basically equity and the stock has become a far out of the money call option.

 

I heard that during BK, even if you are a (minority) bond holder, you can still be robbed by the big holders by not allowing you participate. Have that happened to you before?

 

No, I never went down with the ship buying bonds. I did buy junky bonds before,  but I typically play just below investment grade (BB/BB+). This one ( AMC bonds ) would be too iffy for me.