Independent Exhibitors Film Bulletin (1956)

DANGER IN LIQUIDATION (Continued from Page 22) ADVICE: Twentieth Century-Fox has advanced 7 points (32%) in price since it was last reviewed three months ago when we classified it as especially underpriced. At this point, the price discounts reasonably the earnings and dividends in prospect for the year ahead. We therefore v classify the stock in Group III (Fairly Priced). To the years 1959-61, TCF has a normal appreciation potentiality of 38%, almost twice as much as the average gain projected for all stocks. Asset-minded investors might als note that the stock is currently trading at a 14% discount from its book value, which does not even reflect the ful valuation of the company's library of old films and othe real properties that have appreciated substantially in market value. The stock continues interesting for generous dividend income and 3 to 5-year capital gain prospects. BUSINESS: Universal produces and distributes motion pictures for both Class A and Class B markets. Holds U.S. distribution rights from important British producers. Through subsidiary controls Castle films, one of the largest homes and industrial film companies. UNIVERSAL PICTURES Approximately 45% of revenues foreign. Labor costs about 65% of revenues. Dividend payments since Decca Records Inc. took control of company in 1952 about 40% of profits. Decca controls 74% of the outstanding common stock. Employs 3,300, has 2,136 shareholders. Board Chairman, N. J. Blumberg, President, M. R. Rackmill. Incorporated: Delaware. Address: 445 Park Avenue, New York 22, New York. Stock traded: NYSE. REPORT: Universal's first quarter earnings were reported at $1.10 a share representing an increase of 4% over the like 1955 period. The company does not report revenues in its quarterly statements, but it is assumed that they also were satisfactory. The company plans to release 36 pictures this year vs. 34 in 1955. Steadily increasing consumer income and the apparent comeback by the movie industry as a whole influence this Service to estimate Universal's revenues at a slightly higher level in 1956. Total revenues are projected to $82 million and earnings to about $4.20 a share. Stockholders may share in the expected prosperity through a larger year-end dividend. Total disbursements for 1956 are estimated at $1.50 to $1.75. An interesting feature of Universal's growth is that it has been largely accounted for by foreign revenues, which have increased 70% above the average of 1947-49, while domestic revenues increased only 8%. This foreign success is apparently accounted for by the fact that although foreign disposable income has grown less rapidly than our own, television has not yet captured such a large part of the potential audience as here. This situation will probably persist at least in the near future, and producers can look for better returns with the unblocking of foreign currencies. The foreign market is still expanding and Universal is in a good position to take advantage of it. Universal is one of the few companies that has not made any arrangements to release its old pictures to TV and it apparently has no intention of doing so at present. The company does have a small subsidiary, United World Films, which produces TV commercials, and management has stated that "substantial revenues" are gained through this operation. Since the affiliate uses studio facilities for its productions, it undoubtedly has added a measure of stability and growth to the company. Over the longer period we expect Universal to continue its growth; the bullish elements that will affect the motion picture industry as a whole should not pass this company by. Increasing disposable income, increasing population (especially in the movie-going age range), and more leisure time should all contribute to the company's expansion. For the hypothesized 1959-61 economy envisioned by this Service, we project Universal's sales to $9.5 million, earnings and dividends to $5 and $2.25 a share respectively. Capitalized at 6.3% (to accord with past norms adjusted for trend) such dividends would command an average price of 36 (7.2 times earnings). ADVICE: At its current price, Universal stands one standard variation above its rising Rating and is thus classified in Group III (Fairly Priced). The equity's expected yield (5.4 to 6.3%) is above the average of all stocks under survey and the long-term appreciation potentiality (29%) is attractive as well. The stock is suitable for risk accounts willing to accept the low quality ranking. An additional caveat: Decca Records holds about 74% of outstanding common shares thus inducing a thin market for the equity. BUSINESS: Warner Bros. Pictures produces both Class A and Class B films. Through subsidiaries operates a music publishing bsuiness and holds a 37'/?% interest in a major British theatre chain. About 40% of revenues derived in foreign markets. Payroll absorbs REPORT: On March 1st, Warner Bros, announced that it had signed a contract to sell all rights to its entire library of films released up to 1948 to PRM, Inc. for $21 million. Recently available information indicates, however, that the sale has not yet been consummated; it is contigent upon a favorable tax ruling by the Internal Revenue Service. It appears that Warner Bros, wishes to retain certain rights under which it may continue to distribute the films in foreign countries for five more years. For that reason, it has become necessary for the company to seek a special ruling from the Treasury Department confirming that the proceeds from the proposed sale would be taxable as a capital gain and not as ordinary income. WARNER BROS. about 65% of revenues. Directors own about 622,000 shares of stock 125% of total outstanding) of which the Warner family owns 620,000 shares. Company employs about 4 000; has 17,513 stockholders. Pres., H. M. Warner, V.P.'s, A. Warner, J. L. Warner, H. Starr, S. P. Friedman, S. Schneider, B. Kalmenson, M. Blumenstock. Incorporated: Delaware. Address: 321 West 44th Street, New York 36, New York. Stock traded: NYSE. Warner Bros.' decision to sell its library to television was probably motivated by production demands on ready cash. While the company was by no means faced with any serious financial plight, it entered the current fiscal year on Sept. 1, 1955, with cash and governments of only $7.5 million, down substantially from the 12.3 million level 12 months ago. With the release of several expensive pictures delayed beyond the originally planned distribution dates, the bulk of the company's working capital has been tied up in inventory. Should the company succeed in selling its library, therefore, its ability to finance future productions would be enhanced appreciably. Even if the proposed sale fails to finalize, however, War Page 30 Film BULLETIN May 14. 1956