Valuation analysis of Regal Entertainment

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Objective
To value a company listed on major stock exchange.

Summary
We selected Regal Entertainment, the largest motion picture exhibitor in the US and based on our fundamental analysis including industry analysis, company analysis and financial analysis, the company is a ‘HOLD’ with a positive outlook.

Approach & Methodology
Industry Research: We identified the main competitor and key drivers and trends in the industry.
Company Research: We gathered information of the company historical performance and market positioning vis. as vis. its peers.
Company projections: We developed a full three statements financial model to forecast the company’s operation based on the industry analysis and company’s track record.
Valuation: We have used APV approach to value the company as company’s capital structure keeps changing over time. Furthermore, we also calculated the implied valuation using trading and transaction multiples.

Industry Overview

Resilient industry
The US movie exhibition industry is considered a relatively defensive industry with low revenue volatility. Main reason for this is that the American customers’ willingness to go to the movies is less correlated with the economic cycle. People go to the movies both in the good times and in the bad times. Thus, box office performance can vary widely quarter to quarter due to films released, but is generally steady in longer term (see figure 1). The box office performs in weak macro environments because it is one of the cheapest forms of out-of-home entertainment, such as sports, concerts, vacations, and etc. (see figure 2). Movie theaters continue to draw more people than all theme parks and major U.S. sports combined. Meanwhile, economic expansion cycle and movie exhibitor revenues display little correlation – performance is more tied to the