RBC Capital ups Cineworld to 'top pick'

18th Dec 2018 07:42

(Sharecast News) - RBC Capital Markets upped Cineworld to 'top pick' from 'outperform' on Tuesday, pointing to "significant" upside to its 350p price target.It said the acquisition of US-based Regal cinemas provides Cineworld with a good opportunity to use its proven management skills on a larger group. The share price has moved to the bottom end of its trading range and now provides good value in a proven management team with plenty of opportunity from Regal, RBC argued."With the group trading on just 11.2x 2019E price-to-earnings and with 10% earnings per share compound annual growth rate expected in the next three years, we believe it is undervalued with a 350p price target," RBC said, noting that it's adding the stock to its 'European Equity Large Cap Best Ideas' list.As far as the deal is concerned, RBC estimates €1.04bn of EBITDA this year and $1.1bn in 2019, with the $100m of synergies giving a takeout multiple of 5.5x for a business that has 18% share of the largest cinema box office globally."The group has already introduced seat booking into the cinemas and will roll out more of its disciplines in 2019. We believe this is a transformational deal with a lot of upside at a modest price."RBC said Cineworld has a very good track record in an industry that has seen declining attendances."Growth is from higher revenue per attendance driven by premiumisation of the product from seating to screen quality. The net effect of this is modest organic growth but good cash flows that are invested in new unit expansion through greenfield sites and add-on acquisitions."At 1325 GMT the shares were down 1.1% to 265.80p.