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AIM listed London and New York based theatre marketing group reach4entertainment (LSE:R4E) has today announced that a strong second half performance has seen a return to overall profit for the 2012 calendar year and that it is confident it “will continue to make progress throughout the course of the current financial year”. With the shares currently approaching 14% higher, at 6.25p, on the back of the announcement the following reviews my stance here having previously suggested (at 4.75p) that there was a growing case for a small average-down speculative punt and most recently that I continued to believe it not too late to average down at 6.625p…
To read my previous detail analysis click here
Today’s announcement updated that the company’s London-based theatre marketing business, Dewynters, produced “a healthy performance” in 2012, which was augmented by a strong performance from the signage and fascia business, Newman Displays. In New York, the company noted its recently launched events division, Reach4Events, is enjoying a good start but that the New York-based theatre marketing business, SpotCo, “was impacted by a weaker than expected slate of new show openings, resulting in reduced revenue on a year-on-year basis. However, as a result of increased operational efficiencies and tightened cost control it made a positive contribution to the group result”.
Looking forward, r4e noted that SpotCo has secured a strong slate of new shows for 2013 and that, similarly, Dewynters has a solid slate of new shows. It additionally emphasised that the impact of extensive restructuring is now beginning to show – including the reduction of head office overheads by approximately £2 million, with further improvements expected in 2013. The company added that it has now concluded a reorganisation of its loss-making New York-based merchandising business, Dewynters Advertising, involving outsourcing the operational fulfillment and logistics activities. This will insulate from future losses associated with this activity and should now produce a modest contribution to group profits.
I have stated my belief that the stabilised group has the potential to generate underlying EBITDA of £3 million+ this year and that an Enterprise Value/EBITDA multiple of 8x is a reasonable target. This suggests that a share price in excess of 14p is realistic – for my detailed analysis click here.
Today’s update further increases my confidence in the restructuring and recovery story here. Though a material net debt burden means that this remains not one for the risk-averse, its credit facility running to May 2015 on covenants, it updated in November, that it is “satisfied” are consistent with future anticipated financial performance, mean I continue to believe it not too late for the adventurous investor to average down at present share price levels. Buy.
Tom Winnifrith writes for 10 UK and Us investment and political websites. Links to all his writings plus stacks of unique content can be found on his own blog www.TomWinnifrith.com – you can get alerts to all his articles by following him on twitter @tomwinnifrith
Yes …completely out of order of him not to admit all the previous recommendations at much higher prices….
Andy
Au contraire. Do a search on my pieces for the word apologise. When I make an error or a bad call I apologise. Two posts here – 2 factual errors. No one could accuse you of inconsistency.
Best wishes
Tom