Forum Archive Index - March 2002

["Andrew Denholm" <geneva.roth@xtra.co.nz>]

Force Corporation's latest result, excluding abnormals, reflected strong cinema EBITDA growth and this does not even include Lord of the Rings and Oceans Eleven. Second half EBITDA will surprise on the upside.

 

Force Corporation is now 75% owned by SKC. There is no rationale for SKC to let the minorities participate in the equity appreciation as the company recovers. My bet is SKC will buy out the minorities within 12 months.

 

The Force Mandatory Convertible Notes (FORGA) are definately the preferred play. At current pricing ($1.25 per note) you are buying the equivalent of an ordinary share at 2.5 c.p.s. In theory the ords are over-priced and should come back further. This has not happened to date. Also, FORGA have an equity downside option when they convert so their is an added level of protection.

 

I have valued Force Corporation on comparable cinema EBITDA multiples and a cap rate for the FEC of 9.0%. On a fully diluted basis, this equates to just under 4.0 c.p.s. If the ordinary shares do not fall to a theoretical ex rights price of circa. 2.6 c.p.s the notes are worth circa. $1.80 per note currently.

 

There are only 7.0 million notes on issue (Disney did not take up their entitlement) so the free float is small. Watch out for SKC to mop up the minorities.

 

Disclosure: FORGA holder