Mark Cuban's Investment In Movie Chain Reading International (RDI) Should Have A Happy Ending
Billionaire Mark Cuban, the owner of the Dallas Mavericks, is known for his fiery temper, never-ending enthusiasm, and acute business savvy. When he's not court-side, or working on his HD initiatives, Mr. Cuban dabbles in the stock market. Mr. Cuban is not just your everyday billionaire-gone-crazy with his investments. When he takes a position or makes a move it is something you need to take notice of.
A few weeks ago, we noted that Mr. Cuban filed an initial 13G showing a large stake in Reading International B shares (NYSE: RDI.b), the owner of multiplex cinemas and various real estate. Cuban was not content with this, and earlier in the week Cuban disclosed he increased his position in the B shares and also went after the much-more liquid A shares, or Reading International Inc. (NYSE: RDI). Cuban showed an initial 500,000 share stake in the A shares. We were told that Cuban went for the A shares, because he already bought all the free-float of the B shares, which are the voting shares, and mainly controlled by Reading International founder James Cotter and his family. Cuban now owns 13.9% of the Class B shares and 2.4% of the Class A.
The story on Reading International gets more interesting when you look at the fact that Mr. Cuban is not just owner of the Dallas Mavericks and HDNet, but he's also part owner of Landmark Theatres, the biggest independent art house movie theater chain in the U.S.. Cuban knows movies and movie theaters, so an investment in Reading International looks to be right in his wheelhouse.
Cuban also has an impressive short-term track record of investing in publicly traded movie chains. In December 2008, Cuban disclosed a 9.4%, or 1,200,000 share, stake in Carmike Cinemas, Inc. (Nasdaq: CKEC). Cuban paid $2.30 per share for the stock and it currently trades at $7.91 - that's an amazing 250% return!
Could RDI see the move that Carmike witnessed? That would seem unlikely short-term, but last summer RDI was trading at $9 per share. A double in RDI is entirely possible. Also, because Cuban is a Form 4 filer in the stock he can't quickly flip it without paying repercussions. So he is likely in for the long-haul.
In addition, Reading International should also benefit in the short-term as it will be included in three Russell indices -- Russell 3000, Russell Microcap and Global Indices. The addition will force funds to add the stock to their portfolios. The buying could help close the historic gap between the A shares and B shares.
Fundamentally, Reading may look like more of a challenge and this could explain why no analysts cover the stock. But what may appear to be Reading's weakness, its Enterprise Multiple, or Enterprise Value dividend by EBITDA, could see significant improvement.
Reading is the number 2 movie exhibitor in New Zealand, the number 4 movie exhibitor in Australia and is number 13 in US and is also a large land holder in the U.S, New Zealand and Australia. To improve its capital ratios, Reading is moving to monetize assets, including selling part of its land holdings. The company is expected to report a sizable $11.5 million non-recurring gain in the June quarter from a recent $22.9 million debt retirement. The debt retirement was a smart move and will save the company $2 million per year in interest payments. Reading is also rumored to be a bidder for the master franchise of Burger King New Zealand, which would further contribute to the top and bottom line at Reading.
So while you may never be a billionaire yourself, you can invest like one by buying Reading International 'A' shares (NYSE: RDI).
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