Cinemas, property and hotels business Event Hospitality & Entertainment (ASX: EVT) this morning reported a net profit of $66.9 million on revenue of $660.9 million for the half-year period ending December 31 2017. Normalised net profit (adjusting for one offs) came in at $102.7 million, which is 15% above the prior corresponding half’s efforts. The group will pay an interim dividend of 21 cents per share, which is 5% above the 20 cents per share paid in the prior corresponding half. Basic earnings per share were 41.9 cents. Once again the half was a tale of its two different operating businesses…
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Cinemas, property and hotels business Event Hospitality & Entertainment (ASX: EVT) this morning reported a net profit of $66.9 million on revenue of $660.9 million for the half-year period ending December 31 2017. Normalised net profit (adjusting for one offs) came in at $102.7 million, which is 15% above the prior corresponding half’s efforts.
The group will pay an interim dividend of 21 cents per share, which is 5% above the 20 cents per share paid in the prior corresponding half. Basic earnings per share were 41.9 cents.
Once again the half was a tale of its two different operating businesses delivering seriously divergent performance.
This business has been the disappointing performer for the past 12 months now and again it handed in tumbling profits thanks mainly to weakness in its core Australian market. Earnings for Australian cinemas came in at $24.1 million, which is down 27% on the prior corresponding half. The NZ cinemas business also saw earnings fall 23%, while Germany actually grew earnings 19%.
Again, Event’s management team blamed the falls on a lack of blockbuster releases to capture the imagination of the general public over the period which seems fair enough as without the massive crowd drawers such as the Star Wars movies attendance numbers will suffer.
Event has a few growth levers up its sleeve for its cinemas businesses including lifting spends on food and beverages, seat classes, and sponsorship or advertising. It can also grow by opening new cinemas in line with areas of new urban development such as Sydney’s Green Square where Event will open a new cinema complex soon.
However, its cinemas business remains in competition with new home technology and online entertainment businesses such as Netflix and this remains a key risk for investors.
The hotels business was once again the highlight of the result with profit growth of 48.5% to come in at $36.4 million, with revenues up 13.7% to $172.2 million. This result compares favourably to rival Mantra Group Ltd (ASX: MTR) that posted profit falls across its hotels business today.
For Event its budget Rydges and modern QT Hotel brands continue to perform well, with QT once again the outstanding growth business in delivering revenue per available room up 14.8% on the prior corresponding half. This is a similar metric to same-store sales that retailers commonly report and the growth rate demonstrates the popularity of the brand across Australia. Its Thredo resorts also impressed with a record result as Event’s hotels remain a beneficiary of the long-term growth in inbound tourism to Australia.
The group also has a substantial property portfolio valued at $1.6 billion, which generated a profit of $6.8 million for the half year.
Based on the closing share price of $13.09 the stock offers a trailing yield of 4% plus the tax effective benefits of franking credits. Notably this business has a long and consistent track record of dividend growth which suggests that dividend should grow nicely over time. The main risk in my opinion being the popularity of the cinemas business, which has no real competitive advantage and relatively low barriers to entry. It also faces competition from rising home entertainment options.
However, there’s little doubt the hotels business is performing well and much will depend on the performance of the cinemas business over 2018 in order to determine whether the stock represents good value at current prices.
Overall, in my opinion for dividend focused investors Event remains a solid choice, although as always investors must be careful about what price they pay for shares.
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The Motley Fool Australia owns shares of and has recommended Event Hospitality & Entertainment. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.