AMC shares boosted by Hycroft stake

Shares in AMC Entertainment, the world’s biggest cinema chain, have spiked in recent days as investors have jumped back into riskier stocks and the company unveiled an unusual M&A move. The shares more than doubled in value from $13.50 on 14th March to $34 on 29th March, but are now back down to $25.68 after falling 13% on Thursday.

The cinema operator recently made an unusual investment, buying an 11% stake in Hycroft Mining for $28m. The company owns a 71,000 acre gold and silver mine in Nevada.

CEO Adam Aron told Reuters: “While the Hycroft investment is pretty far from home, it does rely on a core competency of our company to understand balance sheets, and raising cash, and solving liquidity problems."

If this wasn’t left-field enough, Aron plans further similar moves. "I'd like to think there will be more third-party external M&A announcements going forward,” he added.

“Transformational M&A is mandatory. Our shareholder base has given us capital to deploy with the clear expectation that we are... going to do exciting things with the money they entrusted to us.”

The popularity of meme stocks

Along with Gamestop and Bed, Bath and Beyond, AMC has gained a following among investors as a so-called ‘meme stock’. These are shares that became popular with investors on social media forums such as Reddit during the Covid-19 lockdown.
In 2021, the company raised $1.8bn from retail investors off the back of this popularity. Aron says he plans to use this “war chest” to “play on offense”.

“We ourselves have been thinking creatively and boldly about our future,” he told investors in March in a statement. "Of course, as the largest movie theatre chain in the world, we are passionately committed to orchestrating a full recovery from COVID impacts on the cinema industry.

"But even with the enthusiasm that the public has for movie-going at our theatres, it is not enough for us to merely bring back the AMC of old.”

Indeed, Aron says AMC is adding additional IMAX and Dolby Cinema premium screens, has introduced NFT programmes and now accepts cryptocurrency as payment. AMC is also selling its own branded popcorn.

AMC expects this year’s film releases, including Top Gun: Maverick, Avatar 2 and Jurassic World, to hold it in good stead. Its decision to charge extra for tickets to The Batman with Robert Pattison recently paid off and the film performed well worldwide.

However, sales are expected to be weighted more towards the second half of the year.

AMC’s strategy looks high risk

However, the cinema sector is facing difficulties following the Covid-19 pandemic, popularity of streaming services and rising cost of living. Rival Cineworld has a large debt mountain and is embroiled in a lawsuit with a Canadian cinema operator.

AMC similarly has $5bn in debts. Losses narrowed in the fourth-quarter to $134m from $946m in 2020 ($1.3bn at the full-year 2021 from $4.6bn in 2020).

There’s no question that AMC’s business strategy is innovative. However, some analysts reportedly remarked that the company would be better off paying down some of its debts instead of investing in non-core activities. There is no guarantee AMC’s next investment will perform as well. As such, the shares look high risk and speculative.

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