Member Info for Hexam

Hi Penta,

Given that they have described the rent payments as the 'principal element' this suggests the interest part is included elsewhere which also needs to be deducted. We don't know what this is but it means the cash flow could be anywhere between $400-600m. So yes, if it is $600m like you say (i.e. another mislabelling and no separate interest part at all) then the valuation looks a little light although not all the cash flow will be accessible immediately (e.g. enough needs to be retained for liquidity and to ensure assets always adequately cover liabilities). Also the $600m is not reached until 2027. It is less in earlier years and negative in 2023 - so not a multiple of 5 anyway.

The value depends on the discount rate used and the time horizon of the projections - both of which are subjective but the 9% used in the presentation is I think light given the current state and risks of the business and the increase to interest rates.

Using $300-400m outgo in 2023, AVAILABLE cash flow of $450m p.a. from 2024, 12% discount rate and 20 year projection would give a little more than $3bn but can obviously make this a bit higher or lower by changing any of the above. So maybe anything between $2 to $4bn perhaps?

Sorry, our posts crossed. Yes, could certainly have been labelled better.

…so it’s money going INTO the company from the new equity raises not going out to shareholders as a ‘dividend’.

Penta - that’s just the right issue and placing.

Hi Penta, I haven't looked at the comparisons to prior years or to other companies as such comparisons are in my view largely irrelevant (unless it's to show that you believe CINE's actual forecast of revenues and costs are too cautious and which I suggested may be a better avenue to explore even though they don't seem unreasonable to me). The world for example has moved on since 2019. If you do believe CINE's revenue and cost forecasts than the DCF is the only thing that really matters as far as any valuation goes and that, as agreed, is flawed because of the absence of any rent payments. In addition of course you've got to find someone prepared to meet that valuation.

The other thing on the comparisons is that they look to be largely based on EBITDA but this is a pretty useless measure of profitability and cash flow for CINE- again because of the absence of rents. So the numbers are inevitably inflated and any comparisons implicitly assumes the impact of rents is similar between companies and time periods which won't be the case (on top of all the other things that make comparisons difficult between different companies).

I hope you can provide some useful support to Patience. It is quite clear that I cannot as I believe the $3bn valuation to be about right and that is not what Patience wants to hear (and he's made that very clear). As I said I did suggest looking at CINE's forecasts to see if he was happy with those and to get somebody with valuation knowledge to support his work (sounds like he may have found someone but they clearly didn't understand the accounts well enough).

Although I think $3bn is about right that is just my opinion and I'm sure a case could be made for a higher valuation (especially if arguing CINE's projections could be higher as these are more subjective). But going in so high with $13bn+ is just so 'out there' it actually weakens the case. The case would also probably be helped if the experience and qualifications of the 'expert' were given.

Yes, Penta a lot of effort has gone into the docket but the number it presents is vastly overstated - mainly because of the treatment of leases but other reasons too. You say you don't want to belittle the impact of the rents but these are over $600m a year (and even more if the 'interest paid' includes an element for leases in addition to the lease payments described as 'principal') so to miss them out completely is a huge error and undermines the rest of the paper.

I know Patience and others have put a lot of work into this and that's to be applauded but ultimately it is presenting something which has a significant and fundamental error in the part that matters most (section D) so that it is simply unrealistic and therefore I'm afraid too easy to dismiss.

The valuation presented does not include anything at all for the payment of rents.

Thanks Wolf but I don’t need to be articulate at all in this case as one word is more than enough for starters: Leases.

Hope not as the last thing we need is them chasing more shadows.

It is a net sale. They have reduced their overall holding by around 0.75%, or 10m shares, but a slightly higher number of these are now out on loan.

This is clear from the form and if you compare with the previous one (on 17th May). They’ve gone from 72m total shares to 62m.

"CH11 will immediately impact the shares traded in the USA. But the UK shares are traded on the LSE and will need to follow a different procedure."

There are not separate UK shares and US shares. They are the same shares. The only difference is where they are traded and in the US they are not even listed - they just trade OTC.

So if, as is planned in the Chapter 11, newco is set up the existing shares (wherever they are traded) will not relate to this new company but to whatever is left of the old company which it appears will just be an empty shell.

So no existing shares will follow 'a different procedure' from any other existing shares.

The ‘actual’ TERP is unchanged - it’s fixed so remains 808p. It is the sp that is below the TERP as is often the case following an RI (at least in the short term).

So whatever else the company is guilty of it is not giving out a false or misleading TERP which is simply a sum that they performed correctly.

Unfortunately Wolf I don’t need to imagine too hard as have been in a very similar position myself.

“Why withhold them then?”

Yes, you could argue they are being withheld to suppress a ‘fair’ and in particular higher valuation.

Equally you could argue the results are so bad they didn’t want to put off potential bidders by publishing them.

I suspect though it might just be pragmatism and they don’t want to spend the time and energy needed to do a full set of audited accounts whilst everything else is going on.

All just speculation though.

I think though that at one time they did say they were not producing year end accounts but I can’t remember when, any reason being given or how it gets round the listing rules (exemption because they are in a formal bankruptcy process albeit in the US)?

Not so sure that reported, audited figures will help too much with any valuation. Valuations for ongoing businesses are always 'guesswork' as they depend more on the expected, future profitability than on what has already happened (which will already be at least five months out of date in this case anyway). So although the numbers will give a much more robust view of what has actually happened in 2022, it is what is expected to happen in 2023 and beyond that is key to any valuation - especially as the second half of 2022 will almost certainly show another big loss. Having said that the results should help in at least giving a firmer base for estimating those future financials.

CINE have provided their own guess of financial projections up to 2027 but if you don't want to use their guesses then you'll have to come up with your own. One way or another it's still guesswork though and very little to do with accounting.

"Now why should I think TUI would not go back to at least 20£?"

Because the number of shares is NOT the same. Nor are the costs come to that.

Whilst it is the true the TERP is where the sp 'should' get back to the implicit assumption behind this is that the money raised (in this case €1.8bn) really does add that much value to the company. Initially, in simple terms, it does of course as it's €1.8bn of extra cash but to do so longer term it must increase profitability by broadly as much as the increase in the number of shares - otherwise the expected earnings per share falls which is what ultimately drives share prices. Clearly the market is sceptical at the moment of the real value added.

So it's not enough for the business to be the same - it's got to be better than it was. Put another way it is not automatic that a company reaches its TERP, it's got to earn it by putting the money raised to good and effective use. I'm confident it can but it's not a gimme and in my view results need to show much more sign of improvement than the last lot did. The real test will be the results for the summer as I believe they will tell us a lot - one way or another.

Hi West,

Can you put me down for 85p please. Looks low given most of the other guesses but I'll take a doubling of sp over three years on any share!

Thanks.

Hi Wolf ,

They could actually do an IPO in the US as they are not currently listed there (ARB for example did an IPO to launch on Nasdaq when they were already on LSE and traded OTC like CINE in the states).

Would have been a good idea perhaps a couple of years or so ago pre-Cineplex court case but a non-starter now obviously (they wouldn’t be allowed in current position for a start - would make for a challenging prospectus if nothing else)!

The idea proposed of a rights issue now for existing shareholders is even more of a no-no - not only the same issues as for an IPO but on top of that each shareholder would have to stump up over £2 per existing share if they wanted to take all their rights up and the company wanted to raise the $3bn suggested. That’s probably well over £100k for many holders now. No thanks! Can’t see them finding any banks to underwrite it either even if an RI was allowable.

I thought the judge had already formally rejected these anyway?

:-)

Can I be Polar please?

“Maybe you can enlighten Patience on how to valuations work for his court appointment.”

I already did this (and so has Wolf I think) and docket 1604 pretty much describes it as well.