Village Roadshow Ltd reports full-year results: Should you buy?

What: The $1.1 billion international entertainment and media company Village Roadshow Ltd (ASX: VRL) has reported an 8.3% rise in profit before tax to $91.3 million for financial year 2014. The results were strong across both the Theme Parks and Cinema Exhibition divisions and offset a small decline in Film Distribution.

So what: Village Roadshow is often compared with Amalgamated Holdings Limited (ASX: AHL) due to both companies operating cinema chains. However the performance of Village over the years has far outstripped that of Amalgamated. As a proxy, consider the share price returns of the two companies over the past five years, Village has increased 434%, while Amalgamated is up just 65%. The S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) by comparison has gained 31.4%.

There may be plenty of reasons for this divergence but one key reason (in my opinion) has to do with the assets which don’t overlap. Apart from Cinema Exhibition, Village offers an investor exposure to Theme Parks and Film Production. The Theme Parks division is performing particularly well thanks in part to the newly opened Wet’n’Wild in Sydney, which helped the division grow operating profits to $33.1 million.

Now what: Looking towards FY 2015, management expects Asian expansion of Theme Parks to continue which has the potential in management’s words “to be truly transformational” for the company. Village is also targeting six to eight film releases from the Film Production division which include a number of high profile films.

With Village reporting underlying earnings per share for FY 2014 of 34.9 cents and with the shares trading at $7.50, this implies a price-to-earnings ratio of 21.5. This looks to be a very full multiple to pay but it could be worthy of a place in your portfolio given the potential of the Asian expansion plans.

A stock with BIG growth potential and available at a reasonable price

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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