Is AMC Entertainment getting a quick one on APEs?

Improve results but still bleed

Shares of the world’s largest movie theater chain, AMC Entertainment (NYSE: AMC), have rallied in recent weeks and are only down (-17%) for the year. The pandemic put the movie industry on edge as the epicenter industry faced numerous bankruptcies with smaller theaters, independent theaters and Arclight. AMC was saved from the brink of bankruptcy thanks to the meme stock momentum generated by GameStop’s (NYSE:GME) infamous short squeeze of 2021. AMC CEO Adam Aron credited his miraculous run to action to its legion of small investors known as monkeys. He portrayed the stock market rally as a move for the little guy against the big, evil hedge funds. During that time, they managed to raise over $1 billion in capital by selling shares (and diluting the shares) to keep the company afloat until traffic returned. It came back in the form of 45 million tickets sold in its last quarter as metrics improved in all areas except the debt situation.

Improve results but still bleed

On August 4, 2022, AMC released its fiscal second quarter 2022 results for the quarter ending June 2022. The company reported an earnings per share (EPS) loss of (-$0.20) excluding one-time items per compared to consensus analyst estimates. for a loss of (-$0.23), beating estimates by $0.03. Revenue rose 162.3% year-over-year (YoY) to $1.17 billion, below analysts’ consensus estimate of $1.18 billion. The company still had $121.6 million in GAAP losses, but managed to significantly reduce cash burn from a year ago. The company spent $117 million on cash, leaving it with $965 million in cash on the balance sheet, half of what it had a year ago. Total liquidity at the end of the quarter was $1.176 billion. All good news except for the massive debt she hasn’t racked up in over a year. The Company has not been able to raise new capital as its outstanding shares approach its authorized limit. Shareholders rejected attempts to authorize more shares.

More Blockbusters Coming in Q4

AMC CEO Adam Aron expects a third quarter drop, but ends the year with a blockbuster in Q4 2022 with the release of major blockbuster movies. Planned fourth-quarter releases include Avatar 2, Disney’s Black Panther: Wakanda Forever (NYSE: DIS), and Warner Brothers Discovery’s Black Adam Starring Dwayne The Rock Johnson (NYSE: WBD).

Free the APEs

AMC has declared a dividend in the form of AMC Preferred Equity (APE) units which will begin trading on the New York Stock Exchange under the symbol (NYSE: APE) on August 22, 2022. The dividend is like a 2 for 1 but instead of dividing 1 AMC ordinary share into 2 AMC ordinary shares, it will divide 1 AMC ordinary share into 1 AMC share and 1 APE share. APE shares have a par value of $0.01 and have the same voting rights as common shares.

A solution without dilution to raise capital?

This would keep the shares outstanding for AMC common stock, thereby avoiding common stock dilution. However, it will create an identical number of APE shares. CEO Aron said APE shares could be converted into AMC common stock in the future upon shareholder proposal and approval to increase outstanding shares. This would obviously lead to dilution if approved, which is unlikely. The APE units allow AMC to raise more capital without technically diluting the existing common stock float. It allows the Company to carry out capital increases to repay part of its total liabilities of 12 billion dollars, consisting mainly of 5.35 billion dollars in debt, 4.43 billion dollars in leases and 2 $.6 billion of other debts. It will not dilute its 516,820,595 common shares, but there will simply be 516,820,595 additional shares of APE units.

What happens to the stock on August 22?

Technically, the price of AMC common stock would be halved as it is split into APE shares on a 1-to-1 basis distributed as a dividend to existing shareholders. For example, if AMC stock closes on August 19, 2022 at $30 per share, it can be split into $15 for AMC and $15 for APE or a variation that will equal $30 when combined. This does not take into account any upward or downward price deviations before market on August 22, 2022. It could also trigger a news selling reaction if stocks rise in the split.

Is AMC Entertainment pulling a quick one on the monkeys?

Graphical analysis

Using rifle charts on the weekly and daily timeframes provides an accurate short-term view of the price action landscape for AMC stocks. The weekly Rifles chart bottomed near $9.72 Fibonacci level (fib). The Rifle’s weekly chart staged a rally that broke through the 200-period weekly moving average (MA) at $14.89. The weekly market structure low (MSL) buy signal was triggered on a breakout of $14.22 when the stochastic bounced through the 20 band. The weekly uptrend has a rising 5-period MA at $18.41 and a 15-period MA at $14.81. The weekly 50-period MA stands at $23.90. The weekly upper Bollinger Bands sit at $25.33. The Rifle chart’s daily uptrend has a rising 5-period MA at $24, with stocks bouncing off the daily 200-period MA at $20.65. The daily 15-period MA rises to $18.92 and the daily 50-period MA rises to $15.30. The daily top BBs sit at $28.17. Seasoned speculators looking to take a position in AMC can watch for attractive price decline levels at the $19.77, $17.95, $16.34, $14.54 and $13.10 levels. Potential upside targets on a short range from the $30.58 fib to the $39.90 fib level.

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