By Vlad Schepkov
Citi analysts resumed coverage of AMC Entertainment Holdings (NYSE:AMC) (NYSE:APE) with a "Sell" rating and $1.60 Price Target, as they believe "AMC’s common equity is overvalued at prevailing levels" due to persistent dilution risks.
In their latest note, the analysts note that the struggling cinema chain's "net leverage remained elevated in 2022" and sees the company's ability to deleverage as "primarily contingent on: 1) the recovery in the US box office, and 2) the firm’s ability to raise capital via equity issuance."
While they see positive developments on both fronts - Citi projects "the US box office to grow ~25% in 2023", and the pending combination of AMC common shares and APE units, and the 10:1 reverse split "may improve AMC’s ability to raise capital" - the analysts still see the need for massive dilution in the near term.
"With one share class, AMC hopes the ~35% average discount between AMC common stock and the APE units may close... If the newly combined share class converges at AMC’s prevailing common equity value, we estimate AMC’s share count would need to increase ~77% to pay off all outstanding debt. If the value is closer to the prevailing APE unit value, AMC would need to increase shares by 230% to pay off its debt" - Citi estimates.
The analysts thus see "equity value between ~$1.00 to $2.00 per share at ~7.5x 2024 Adj. EBITDA" as they resume the shares at "Sell" with a $1.60 Price Target.
AMC common shares closed at $4.34 yesterday. APE units finished the day at $1.44.