Top picks 2012: Amalgamated Holdings
This entertainment and leisure company has proved recession-resistant even if the movie business isn't necessarily.
By David Dittman, Australian Edge
Amalgamated Holdings Ltd. (AHD: Australia stock exchange) has more than 1,000 movie screens in Australia, New Zealand and Germany.
Although the movie industry has a reputation for being recession-resistant, dating to the Golden Age of Hollywood in the 1930s and '40s, this is somewhat removed from reality.
It's true that movie-going represents a cheaper entertainment alternative during times of economic distress, but the most significant factor in box office numbers remains the quality of the product exhibited.
Making movies work as an investment is a matter of smoothing out box office revenue that can be as volatile as any Hollywood diva or director.
Sydney-based Amalgamated has managed to complement its movie business with hotel operations, a mix that establishes it as a global leisure services provider.
Profit before tax for the first three months of fiscal 2012 was AU$45.7 million, an increase of 4.3% over the comparable period; ex items year-over-year growth was 10.2%, as German exhibition rebounded sharply.
Hotel operations have suffered amid the current economic uncertainty, as the main Thredbo ski resort saw earnings decline 16.8% year over year.
During its annual general meeting in mid-October, management declined to offer specific guidance for the remainder of fiscal 2012 because of uncertainty surrounding many economies. However, Managing Director David Seargeant did point to a strong film lineup on the horizon, improving conditions in Germany, and a potential return to health for the hotel industry. Amalgamated is "well positioned to continue to meet challenges," he said.
During the three years of the global financial crisis Amalgamated has been able to expand market share, completing acquisitions totaling AU$211 million.
For fiscal 2011 the board declared a final dividend of AU$0.23 per share as well as a special dividend of AU$0.04 per share. The total annualized dividend of AU$0.41 per share was up 11% over fiscal 2010, the 10th straight year of dividend growth.
Amalgamated has approximately AU$270 million of credit facilities maturing July 10, 2012, on which AU$46.3 million was drawn as of June 30, 2011. Management has begun negotiations for new credit facilities.
Amalgamated has proven itself a solid player in a retail sub-industry, capable of generating significant and consistent cash flow through all types of economic conditions.
Over the past five years Amalgamated has generated a total return -- share-price appreciation plus dividends -- of more than 70% in U.S. dollar terms.
Its current AU$0.37 per share annualized dividend is good for a yield of 6.5%. Buy Amalgamated Holdings under AU$6 on the Australian Securities Exchange.
See all 50+ picks in our Top Picks Report 2012.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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