Intrinsic value of Reading International - RDI

Previous Close

$15.96

  Intrinsic Value

$4.66

stock screener

  Rating & Target

str. sell

-71%

Previous close

$15.96

 
Intrinsic value

$4.66

 
Up/down potential

-71%

 
Rating

str. sell

We calculate the intrinsic value of RDI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.65
  7.50
  7.25
  7.02
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.78
  5.71
  5.64
  5.57
  5.51
  5.46
  5.42
  5.38
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
Revenue, $m
  270
  290
  311
  333
  356
  380
  404
  430
  456
  484
  513
  543
  574
  607
  641
  677
  715
  754
  794
  837
  882
  929
  977
  1,029
  1,082
  1,139
  1,198
  1,260
  1,324
  1,392
  1,464
Variable operating expenses, $m
 
  263
  282
  302
  322
  343
  366
  389
  412
  437
  463
  489
  517
  546
  577
  609
  643
  678
  715
  753
  793
  835
  879
  925
  974
  1,024
  1,077
  1,133
  1,191
  1,253
  1,317
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  250
  263
  282
  302
  322
  343
  366
  389
  412
  437
  463
  489
  517
  546
  577
  609
  643
  678
  715
  753
  793
  835
  879
  925
  974
  1,024
  1,077
  1,133
  1,191
  1,253
  1,317
Operating income, $m
  20
  27
  29
  31
  34
  36
  39
  41
  44
  47
  50
  55
  58
  61
  64
  68
  72
  76
  80
  84
  89
  93
  98
  103
  109
  114
  120
  126
  133
  140
  147
EBITDA, $m
  36
  45
  48
  52
  55
  59
  63
  67
  71
  75
  80
  84
  89
  94
  100
  105
  111
  117
  123
  130
  137
  144
  152
  160
  168
  177
  186
  196
  206
  216
  227
Interest expense (income), $m
  6
  6
  7
  8
  9
  9
  10
  11
  12
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  29
  31
  32
  34
  37
  39
  41
  43
  46
  48
  51
Earnings before tax, $m
  12
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  96
Tax expense, $m
  4
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
  24
  25
  26
Net income, $m
  9
  15
  16
  17
  18
  19
  21
  22
  23
  24
  25
  28
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  70

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  19
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  406
  416
  446
  477
  510
  544
  579
  616
  654
  693
  735
  778
  823
  870
  919
  970
  1,024
  1,080
  1,138
  1,199
  1,263
  1,330
  1,400
  1,474
  1,551
  1,631
  1,716
  1,805
  1,897
  1,995
  2,097
Adjusted assets (=assets-cash), $m
  387
  416
  446
  477
  510
  544
  579
  616
  654
  693
  735
  778
  823
  870
  919
  970
  1,024
  1,080
  1,138
  1,199
  1,263
  1,330
  1,400
  1,474
  1,551
  1,631
  1,716
  1,805
  1,897
  1,995
  2,097
Revenue / Adjusted assets
  0.698
  0.697
  0.697
  0.698
  0.698
  0.699
  0.698
  0.698
  0.697
  0.698
  0.698
  0.698
  0.697
  0.698
  0.697
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
Average production assets, $m
  255
  274
  294
  314
  336
  358
  381
  405
  430
  456
  484
  512
  542
  573
  605
  639
  674
  711
  749
  789
  831
  876
  922
  970
  1,021
  1,074
  1,129
  1,188
  1,249
  1,313
  1,380
Working capital, $m
  7
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
Total debt, $m
  150
  163
  183
  204
  226
  249
  272
  297
  322
  349
  376
  405
  435
  466
  499
  533
  569
  606
  645
  686
  729
  773
  820
  869
  920
  974
  1,031
  1,090
  1,152
  1,217
  1,285
Total liabilities, $m
  264
  277
  297
  318
  340
  363
  386
  411
  436
  463
  490
  519
  549
  580
  613
  647
  683
  720
  759
  800
  843
  887
  934
  983
  1,034
  1,088
  1,145
  1,204
  1,266
  1,331
  1,399
Total equity, $m
  142
  138
  149
  159
  170
  181
  193
  205
  218
  231
  245
  259
  274
  290
  306
  323
  341
  360
  379
  399
  421
  443
  466
  491
  516
  543
  571
  601
  632
  664
  698
Total liabilities and equity, $m
  406
  415
  446
  477
  510
  544
  579
  616
  654
  694
  735
  778
  823
  870
  919
  970
  1,024
  1,080
  1,138
  1,199
  1,264
  1,330
  1,400
  1,474
  1,550
  1,631
  1,716
  1,805
  1,898
  1,995
  2,097
Debt-to-equity ratio
  1.056
  1.180
  1.240
  1.290
  1.330
  1.370
  1.410
  1.450
  1.480
  1.510
  1.540
  1.560
  1.590
  1.610
  1.630
  1.650
  1.670
  1.690
  1.700
  1.720
  1.730
  1.750
  1.760
  1.770
  1.780
  1.790
  1.800
  1.810
  1.820
  1.830
  1.840
Adjusted equity ratio
  0.318
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  9
  15
  16
  17
  18
  19
  21
  22
  23
  24
  25
  28
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  70
Depreciation, amort., depletion, $m
  16
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  30
  31
  33
  35
  37
  39
  41
  44
  46
  48
  51
  54
  56
  59
  62
  66
  69
  73
  76
  80
Funds from operations, $m
  37
  33
  35
  38
  40
  42
  45
  47
  50
  53
  56
  58
  61
  64
  68
  71
  75
  79
  83
  87
  92
  97
  102
  107
  112
  118
  124
  130
  136
  143
  150
Change in working capital, $m
  7
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
Cash from operations, $m
  30
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  72
  76
  80
  84
  88
  93
  98
  103
  108
  113
  119
  125
  131
  138
  145
  152
Maintenance CAPEX, $m
  0
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -48
  -51
  -54
  -56
  -59
  -62
  -66
  -69
  -73
  -76
New CAPEX, $m
  -49
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -64
  -67
Cash from investing activities, $m
  -43
  -34
  -36
  -38
  -39
  -42
  -44
  -46
  -49
  -51
  -54
  -56
  -60
  -62
  -65
  -69
  -72
  -76
  -79
  -84
  -88
  -92
  -97
  -102
  -107
  -112
  -118
  -124
  -130
  -137
  -143
Free cash flow, $m
  -13
  0
  0
  0
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
Issuance/(repayment) of debt, $m
  18
  19
  20
  21
  22
  23
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
Issuance/(repurchase) of shares, $m
  -3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  11
  19
  20
  21
  22
  23
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
Total cash flow (excl. dividends), $m
  -1
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  31
  32
  34
  36
  38
  39
  41
  43
  45
  48
  50
  52
  55
  58
  60
  63
  66
  69
  73
  76
Retained Cash Flow (-), $m
  -7
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
Prev. year cash balance distribution, $m
 
  13
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  23
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
  39
  40
  42
Discount rate, %
 
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
 
  21
  9
  8
  8
  8
  7
  7
  6
  6
  5
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Reading International, Inc. (RDI) is engaged in the development, ownership and operation of multiplex cinemas in the United States, Australia, and New Zealand, and the development, ownership and operation of retail and commercial real estate in the United States, Australia and New Zealand. RDI operates through two segments: cinema exhibition and real estate. The cinema exhibition segment operates multiplex cinemas. RDI's real estate segment includes real estate development and the rental of retail, commercial and live theater assets. The Company manages its cinema exhibition businesses around the world under various brands, including Reading Cinema, Angelika Film Centers, Consolidated Theatres and City Cinemas brands in the United States; under the Reading Cinema brand in Australia, and under the Reading Cinema and Rialto brands in New Zealand.

FINANCIAL RATIOS  of  Reading International (RDI)

Valuation Ratios
P/E Ratio 41.1
Price to Sales 1.4
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 12.3
Price to Free Cash Flow -19.5
Growth Rates
Sales Growth Rate 4.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -7.5%
Cap. Spend. - 3 Yr. Gr. Rate 19.6%
Financial Strength
Quick Ratio 3
Current Ratio 0.6
LT Debt to Equity 101.4%
Total Debt to Equity 105.6%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. 7.2%
Return On Total Capital 3.2%
Ret/ On T. Cap. - 3 Yr. Avg. 6.6%
Return On Equity 6.5%
Return On Equity - 3 Yr. Avg. 14.8%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 23.3%
Gross Margin - 3 Yr. Avg. 22.6%
EBITDA Margin 12.6%
EBITDA Margin - 3 Yr. Avg. 16%
Operating Margin 7.4%
Oper. Margin - 3 Yr. Avg. 8.4%
Pre-Tax Margin 4.4%
Pre-Tax Margin - 3 Yr. Avg. 6.9%
Net Profit Margin 3.3%
Net Profit Margin - 3 Yr. Avg. 7.4%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. -2.7%
Payout Ratio 0%

RDI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RDI stock intrinsic value calculation we used $270 million for the last fiscal year's total revenue generated by Reading International. The default revenue input number comes from 2016 income statement of Reading International. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our RDI stock valuation model: a) initial revenue growth rate of 7.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.8%, whose default value for RDI is calculated based on our internal credit rating of Reading International, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Reading International.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of RDI stock the variable cost ratio is equal to 90.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for RDI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.2% for Reading International.

Corporate tax rate of 27% is the nominal tax rate for Reading International. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the RDI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for RDI are equal to 94.3%.

Life of production assets of 17.2 years is the average useful life of capital assets used in Reading International operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for RDI is equal to -2.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $142 million for Reading International - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 23.754 million for Reading International is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Reading International at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ Reading International posts 3Q profit   [Nov-07-17 05:03AM  Associated Press]
▶ Reading International Announces Third Quarter 2017 Results   [Nov-06-17 09:30PM  Business Wire]
▶ Reading International posts 2Q profit   [Aug-10-17 12:33AM  Associated Press]
▶ Reading International Announces Second Quarter 2017 Results   [Aug-08-17 07:18PM  Business Wire]
▶ Gabelli & Companys 9th Annual Entertainment Conference   [May-25-17 08:57AM  Business Wire]
▶ Reading International posts 1Q profit   [May-09-17 08:29AM  Associated Press]
▶ San Diegos Best Movie Value   [May-02-17 11:40PM  Business Wire]
▶ TITAN XC Opens at Reading Cinemas Grossmont   [11:38PM  Business Wire]
▶ Reading International posts 4Q profit   [08:20AM  Associated Press]
▶ Reading unveils 3-year plan to expand cinemas, declines offer   [Mar-06-17 04:15PM  at bizjournals.com]
▶ Reading unveils 3-year plan to expand cinemas, declines offer   [04:15PM  American City Business Journals]
▶ 44 Union Square Closes Construction Finance   [09:00AM  Business Wire]
▶ Hedge Funds Are Crazy About Reading International, Inc. (RDI)   [Dec-14-16 11:20AM  at Insider Monkey]
▶ Rockwell announces appointment of new CFO   [Nov-10-16 01:50AM  CNW Group]
▶ Rockwell announces board and management changes   [Sep-12-16 05:38PM  CNW Group]
▶ Reading International To Present at Investor Conference   [Aug-31-16 09:00AM  Business Wire]
Financial statements of RDI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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