Reading (RDI) recently reported second quarter earnings. Reading has long been a favorite holding of mine, and quite frankly I think it’s a steal at current prices. With that in mind, let’s review their results and see if anything new has popped up.
First, results were excellent. Cinema revenue grew almost 19% year over year while real estate revenue grew almost 6%. For the first half of the year, EBITDA (adjusted for some one time items) grew almost 7%. Like I said, excellent results.
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With that in mind, let’s review the investment thesis for RDI to see if it’s still intact.
Reading operates in two segments: real estate, and cinema. Let’s start by reviewing their cinema segment.
Reading cinema segment generated $30.2m in ebitda in the past twelve months. That’s the simple part- the question is what multiple to assign to those earnings.
To figure that question out, let’s go look at their two largest publicly traded competitors. Regal (RGC) generated $468.4m in ebitda in the trailing twelve months, and Cinemark (CNK) generated $491.5m. RGC trades for slight over nine times EV / EBITDA, and CNK trades for about 7.6x EV / EBITDA.
Using those two as guideposts, we can infer Reading’s cinema segment is worth between $230m – $270m. Given their current EV is ~$285m, you could make a reasonable argument that at today’s prices, you’re basically buying RDI’s cinema segment for a fair price and picking up all of their real estate for free.
So just how valuable is Reading’s real estate? As of their most recent 10-k, Reading had $185m in book value of real estate assets. There’s reason to believe this figure understates the true value of Reading’s real estate because 1) the book value has almost certainly increased in the past six months, but Reading only breaks out their assets by segment in the 10-K (not their Qs), so I’ll use this figure to be conservative and 2) several of their real estate assets (including, most notably, their $55.9m Burwood property) are held below their current market value.
If you add the $185m in book value assets from the real estate (again, likely understated) to the $230-270m in value from the cinema segment, you come up with a projected EV of $415m-$455m. Reading had net debt of $191.3m and 22.8m shares outstanding at their most recent balance sheet. Doing some fast math, these figures would lead to a projected per share value of $9.81-11.57. Put another way, even assigning a conservatively low multiple to their cinema segment and treating their real estate as only worth book value (unlikely), Reading’s shares deserve to trade at more than double today’s prices.
Disclosure: long RDI
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