MOVI: asset play?

**springsnailt** Fri Feb 24, 2006 11:05 am

MOVI: asset play?
shareholder's equity $334M is three times of the market cap $108M. Not sure if the goodwill should be counted or not.

**dahhuilaudavid** Fri Feb 24, 2006 4:54 pm

If you look at the lastest 10K filing, you will see why the market cap is $110M while equity is $333M.

The most important thing is to calculate the enterprise value.

Enterprise value
= Market cap + Total debt (interest paying) - Cash
= $110M + $1345M - $69M
= $1386M

Enterprise value/Equity ratio
= $1386M/$110M
= 12.6X

Another important thing is to look at the free cash flow.

For 39 weeks ending Oct 2, 2005:
Net operating cash flow = $65M
Net Investing cash flow (excluding acquisition) = $61M
Free Cash Flow
= $65M - $61M
= $4M

Extrapolate the free cash flow to 52 weeks = $5.3M

Enterprise value/free cash flow
= $1386M / $5.3M
= 261X

The "estimated 52 weeks" free cash flow can't even cover the interest payment of $41M (39 weeks interest)!! No wonder the share dived from $34 to $3.5, wiping almost 90% of the company value.

Movie Gallery is definitely not a bargain anymore after some basic analysis, isn't it?

Goldman Sachs, one of its largest institutional investors, has also reduced its stake by a third.

Competitors like Netflix and Blockbuster Online are making life harder for Movie Gallery.

All the best,
Dah Hui Lau (David)
http://dahhuilaudavid.blogspot.com/

**springsnailt** Fri Feb 24, 2006 5:26 pm

Thanks...

The case is more complicated than that. Movie Gallery and Hollywood Video merged in 2005. The accouting book needs to be straightened out.

I'm not that concerned about GS: they are just sharks coming and leaving with traces of blood but not analysis.

**zhao_xing** Sat Feb 25, 2006 12:26 am

MOVI has huge debt after acquiring Hollywood. Based on the cash flow I expect it can generate, I hardly believe it can pay down all of the debt eventually.

Also, vidio rent is a declining business now. This industry may disappear in next 5-8 years.

**blast_investor** Sat Feb 25, 2006 1:05 am

In MOVI case, the goodwill is not worth that much. There is no real barrier to entry in video rental business.

This acquistion was horrible. Huge debt, poor cash flow. Video rental market has competition from online stores and Google, the business prospect is pretty poor.

I do not like this stock.