ALEX BRUMMER: Movies pop on Wall Street

ALEX BRUMMER: Movies pop on Wall Street as disrupters continue to take on the might of Wall Street

Anyone who thought the social media excitement around Gamestop was a one-off and the interest of millennials and Gen-Z investors taking on the might of Wall Street would fizzle out has been proved wrong.

The last few days have seen amazing gyrations in the shares of movie chain AMC, one of the meme stocks widely touted on Reddit. Last year, with cinemas closed, AMC was all but bankrupt.

This week the shares were in the stratosphere, with a valuation of $30billion (£21.4billion) after the chain offered investors free buckets of popcorn when they go to the movies.

Showtime: The last few days have seen amazing gyrations in the shares of movie chain AMC, one of the meme stocks widely touted on Reddit

It may all be just fun to social media investors, but AMC’s management has taken advantage of the share price surge by announcing it is going to sell 11.55m of its shares on the open market in a do-it-yourself rights issue. 

The stock tumbled 8 per cent from its highs with chief executive Adam Aron cleverly using the situation to bolster stretched finances.

Last week Aron sold a $230million stake in the company to hedge fund Mudrick Capital Management which took an immediate profit when it sold the shares back into the market at a premium in this week’s trading. 

The disrupters taking on the powers of Wall Street have effectively assisted AMC out of a financial hole and enriched the very capitalists who they were seeking to punish.

Most companies might not welcome the arrival of a rabble of 3m private investors, brought aboard as a result of social media posts, buying shares through no-commission broker Robin Hood. But Aron has greeted the new shareholders by talking to them directly on favoured sites.

The AMC situation is also breathing life into London-quoted Cineworld, where three quarters of pre-Covid revenues came from its US chain of Regal cinemas. 

Broker Jefferies says Cineworld is now its top leisure pick. The shares plummeted to just 24.76p in October 2020 and are currently trading at 95.5p. 

As stored new releases flood on to the silver screens, it expects Cineworld shares to rise by as much as 50 per cent.

It’s fascinating how serious players are taking their lead from slick neophyte investors.

But one can’t help but feel that Reddit, crypto-currencies, Spacs and recent tech float valuations are all part of the same phenomenon created by the global central banks. There is too much money chasing too few reliable investment opportunities.

Deep waters

Pennon, which owns South West Water, is often overlooked as it dives in and out of the FTSE.

The all-women team at the top of chair-man Gill Rider and chief executive Susan Davy is reshaping the group by refocusing on core water supply. 

The board disposed of waste company Viridor for £4.2billion to private equity princelings KKR in March 2020. Pennon is now splashing the cash. 

It is buying neighbour Bristol Water for £814million including debt. And it is holding on to a small fighting fund for future acquisitions.

Preferably it wants to buy contiguous water providers but does not rule out looking further afield.

Pennon is using some of the money sloshing around to pay back £1.1billion of debt. It is also proposing to pay a special dividend of £1.5billion to shareholders and to organise £400million of share buybacks. 

That is terrific for investors, who generally buy stock in utilities for predictable returns rather than one-off payouts.

The company famously bought some goodwill from customers with its offer last October of £20 worth of free Pennon shares. 

Nevertheless, given that the group is cash rich and South West Water bills historically have been higher than other suppliers, customers might feel aggrieved that the distribution of resources was not more evenly shared among all stakeholders.

No change there then.

Discount rate

Amid the myriad of retail private equity-backed companies which gone wrong, B&M stands out as a great success story. It generated a 108.5 per cent jump in pre-tax profits in a pandemic year to £525.4million.

It was the moment when middle-class former M&S customers transferred their loyalty to the cheap-as-chips stores in droves. 

When it went public, B&M founders the Arora brothers took flak for the offshore tax arrangements put in place alongside backers Clayton, Dubilier & Rice. 

We are assured that all that is over and dividends and other payouts are taxed in the usual way by HMRC. Just as it should be.