Dear Mr. Berko:
When our father died last July, he left us six stocks. Five of them are electric utility stocks that are good, and the other is Regal Entertainment Group. I remember when Dad bought 300 shares of Regal in 2009 because I persuaded him to reinvest the dividends on all of his stocks as you always recommend. As all the dividends have been reinvested, we now have 441 shares of Regal. My sister and I will keep the utility stocks, but we would like your opinion on the Regal stock. We're both employees of the New York state school system, and so are our respective spouses. Therefore, we have very substantial incomes and don't need to touch these stocks, though we are concerned about the survivability of our pension plans. We enjoy your column.
-RT, Syracuse, N.Y.
Dear RT:
And you should be concerned. The New York Legislature is among the sleaziest, most evil and most crooked legislatures in the U.S. And like the legislators in Florida, Georgia, Alabama, Illinois and Louisiana, these guys retire from their elected positions with pockets full of IOUs that guarantee a prosperous and glorious retirement. That's politics. According to Moody's Investors Service, the New York State Teachers' Retirement System is underfunded by $161 billion, and some say that amount is closer to $260 billion. Sadly, few of the state's legislators seem to give a fig about how poorly your pension dollars are managed or the insanely high fees paid to pension managers. So in September, the slickly coiffed legislators in Albany raised your contributions and now take 17.5 percent from your paychecks. And that amount may be raised to 18.95 percent in 2018!
Regal Entertainment Group (RGC-$17.99) operates 7,400 screens in 571 theaters in 42 states, under such names as Regal Cinemas, Edwards Theatres and United Artist Theatres. RGC claims it sold tickets to 220 million attendees last year, which-along with the sale of buttered popcorn, candy bars, soft drinks, nachos with cheese and other maximum-calorie junk food-generated $3.1 billion in revenues last year. The company has benefited nicely from a fertile pipeline of domestic children's movies, monster movies, animation films, action films, record-setting performances-e.g., "Jurassic World" and "Star Wars: The Force Awakens"-and surprise hits.
Movie theaters generate revenues from three main sources: admissions, concessions and the 35 minutes of advertising we're required to watch before the feature begins. Though admissions account for the largest percentage of revenue, they generate the lowest margins. For example, last year, RGC generated $2.2 billion in ticket sales and $828 million from concession revenues, while the annoying in-theater advertising took in $165 million. But gross margins on ticket sales were 48 percent, and RGC lost money on those ticket sales. Gross margins on concession revenues were 87 percent, and the stupids who use a credit card to pay $6.50 for a large soda, $5 for a small bottled water, $7 for a hot dog, $4.50 for a candy bar and $6 for a tiny bag of buttered popcorn are the nexus of RGC's earnings. And I thought the food at Yankee Stadium is expensive. RGC also nets about 32 percent from that overly loud in-theater advertising.
RGC's revenue growth is difficult to forecast, and earnings can be up and down like a helicopter. Still, Hollywood has some good films coming out. With the continuation of "Star Wars" plus new Marvel and DC Comics superhero installments, theater seats are likely to remain occupied through most of 2016. So management expects 2016 earnings of $1.30 a share, up from $1.20, and the 88-cent dividend, yielding 4.6 percent, may be raised to 96 cents.
RGC is followed by 18 brokerages, and the consensus suggests a low target price of $18, a high target of $30 and a mean target of $21. But sell those shares. In my opinion, RGC lacks the long-term energy and investor enthusiasm to move its share price much above the $20 level. The proceeds can be invested more smartly.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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Published: Thu, Jan 21, 2016
