The Australian B.O. rebounded in August and September after a disastrous July but the line-up for the rest of the year appears weaker than the first half of 2014.
That’s the pessimistic outlook of Ord Minnett entertainment analyst Nicholas McGarrigle.
However McGarrigle is bullish about 2015 and 2016, forecasting annual growth of around 3% and even stronger increases for the major chains Event Cinemas and Village as both add screens.
Industry-wide grosses in July were down 12% on the prior year but recovered most of the lost ground and were off by just 1.8% through the week ending October 1.
“We expect box office to deteriorate further as the slate of releases remains somewhat soft compared to 1H14,” said McGarrigle in a briefing to clients.
That’s despite a line-up that includes Christopher Nolan’s Interstellar (November 6) The Hunger Games: Mockingjay- Part 1 (November 20), Alexander and the Terrible, Horrible, No Good, Very Bad Day (December 4), Horrible Bosses 2 (December 11), Annie (December 18) and The Hobbit: The Battle of Five Armies, Night at the Museum: Secret of the Tomb, Disney’s Big Hero 6, St Vincent and The Water Diviner (Boxing Day).
The analyst is confident about the next two years on the back of films such as Star Wars Episode VII, The Hunger Games: Mockingjay- Part 2, The Avengers 2, Fast & Furious 7, Terminator Genesis, James Bond 24 and Fifty Shades of Grey (2015) and Batman vs Superman, Independence Day 2, Avatar 2, X-Men: Apocalypse, Captain America 3, Pirates of the Caribbean 5 and Star Trek 3 (2016).
He notes Village Roadshow Ltd shares were sold off following the financial year 2014 result, which saw film distribution earnings decline by nearly 10%. But he sees an upside in the B.O. over the next two years and as the Gold Coast theme parks, early indications of demand at Wet ‘n’ Wild Sydney and new Asian park opportunities support medium-term growth.
“VRL has been able to consistently outgrow box office revenue in its exhibition division through the Gold Class and Vmax concepts, improvements in food and beverage and, we suspect, some market share gains,” he said.
With VRL shares trading at $6.93, he values the stock at $8.23 per share and, factoring in the 47%-owned Hollywood production house Village Roadshow Entertainment Group, a potential value up to $10 per share.