The acquisition of four Odeon cinema sites by Everyman Media (EMAN:AIM) is expected to bring significant financial and intangible benefits for the boutique cinema operator.

The £33 million cap floated in November 2013 stating there was ‘significant growth potential’ for an independent cinema chain in the UK. It planned to open ‘at least’ three cinemas in the next 18 to 24 months but so far had only managed to increase its portfolio from 10 to 11 cinemas.

The group finally looks to be gaining momentum. The Odeon deal effectively accelerates its growth ambitions by a whole year and enhances its presence within the industry. It is also opening a new site at Canary Wharf on 15 May with further cinema sites in Bristol, Harrogate and Cirencester to follow.

Everyman is acquiring the Odeon cinemas for £7.1 million after raising £20 million via a new share placing. An additional £6 million of capital expenditure has been earmarked for upgrading the sites post completion.

The sites had earnings before interest, tax, depreciation and amortisation (EBITDA) of £500,000 in 2014 which arguably makes the acquisition price look expensive. Everyman says the cost is ‘comparable or marginally below’ the amount it expects to pay when opening any site. ‘Following refurbishment the directors expect the target sites to achieve a significantly improved level of financial performance,’ it adds. The cinemas are expected to be fully operational within 12 months.

Cenkos, which is the placement agent, estimates the four additional sites will contribute annual EBITDA of £2 million upon maturity.

The new sites are located around the South East so they are complementary to the existing business, which is predominantly London-focused. Everyman operates small venues which show a range of current and classic films alongside alternative content. Each venue has a fully licensed bar and offers a range of pizzas, grills and pasta dishes.

This enables the group to generate higher revenue per head than the multiplex operators - in 2014 it totalled £15.54 versus £7.59 at Cineworld (CINE), although the latter offers an Unlimited Card membership scheme providing attractive recurring revenue. We think that given Everyman’s wealthy customer base there is scope to increase this spend further.

Everyman must be seen as a long-term investment - its price to earnings ratio for 2015 is a whopping 527.7, falling to 71.2 the year after and 28.4 in 2017. Cenkos forecasts EBITDA to increase by 116% to £3.3 million in 2016.

At 91p Everyman offers significant growth potential over the long-term.

SWOT ANALYSIS

STRENGTHS

• Differentiated offering

• Wealthy customer base

• Growing revenues

WEAKNESSES

• Very high PE ratio

• Not a household name

• Small profits

OPPORTUNITIES

• Strong 2015 film slate

• Site expansion

• Increase customer spend

THREATS

• Extreme weather conditions unpredictable

• Pricing pressures

• Increased competition