Saturday, April 08, 2006

CKX Inc (CKXE) Analysis

Hilary Kramer profiled this company in her blog. First we will analyze to see what this company does. Then, we will see Hilary's recommendation and see if this stock has upside potential.

From the 10-K,

We are engaged in the ownership, development and commercial utilization of entertainment content. To date, we have focused on acquiring globally recognized entertainment content and related assets, including the rights to the name, image and likeness of Elvis Presley (1935-1977), the operations of Graceland and proprietary rights to the IDOLS television brand, including the American Idol series in the United States (which first aired in June 2002 and commenced its fifth season in January 2006), and local adaptations of the IDOLS television show format which, collectively, air in over 100 countries around the world. Our existing properties generate recurring revenues across multiple entertainment platforms, including music and television; sponsorship, licensing and merchandising; artist management; themed attractions and touring/live events.

The company is primarily in the Elvis Presley and IDOLs business. On the opportunities ahead for the business, again from the 10-K

On February 7, 2005, we acquired an 85% interest in the entities which own and/or control the commercial utilization of the name, image and likeness of Elvis Presley, the operation of the Graceland museum and related attractions, as well as revenue derived from Elvis Presley’s television specials, films and certain of his recorded musical works (the “Presley Business”). The Presley Business consists primarily of two components: first, intellectual property, including the licensing of the name, image, likeness and trademarks associated with Elvis Presley, as well as other owned and/or controlled intellectual property and the collection of royalties from certain motion pictures, television specials and recorded musical works and music compositions; and second, the operation of the Graceland museum and related attractions and retail establishments, including Elvis Presley’s Heartbreak Hotel and other ancillary real estate assets.
We believe the name, image and likeness of Elvis Presley, as well as related intellectual property assets, are prime examples of the type of content that offers opportunities to generate increased revenues from diverse platforms and distribution channels. Elvis is the best-selling solo musical recording artist in U.S. history, having sold more than one billion albums and singles worldwide and having set records for the most albums and singles that have been certified Gold® and Platinum® by the Recording Industry Association of America. In each of the past five years, Forbes Magazine has listed Elvis as the top earning deceased celebrity. During that time, more than eleven million Elvis albums have been sold worldwide and an average of approximately 567,000 people have visited Graceland annually.
While, to date, the Presley Business has been successful in accomplishing its primary goal of protecting and preserving the legacy of Elvis Presley, we believe there is a significant opportunity to further enhance the image of Elvis Presley and develop commercial opportunities for the Presley Business. For example, we are exploring opportunities to bring Elvis-related attractions and/or themed venues to Las Vegas and other strategic locations throughout the world, including Asia, the Middle East and Europe.

The second business is the IDOL business where the company owns the licenses for American Idol and similar programs in hundred different countries. The company has agreement with Fox Telivision to ocntinue the IDOL program through 2009.

The company has about five dollars of assets per share and the shares are tading around $14/share now.

The company had a loss in 2005 as operating expenses were higher than revenue. From the company's 10-K:

Combined operating expenses for the year ended December 31, 2005 increased by $94.7 million over the prior period. Of this increase, $69.8 million reflects the operating expenses of 19 Entertainment since its acquisition, including $9.6 million of acquisition-related depreciation and amortization expenses. Presley operating costs increased $9.2 million, primarily due to the production costs for “Elvis by the Presleys” and $3.1 million of acquisition-related depreciation and amortization expenses. MBST had operating costs of $2.1 million, including $0.3 million of acquisition-related depreciation and amortization expenses. Corporate overhead costs, including $0.7 million of non-cash compensation, account for $11.4 million of the increase and $2.2 million represents other costs related to the transition of the Company in February 2005, including the investment by RFX Acquisition LLC and the acquisition of the Presley Business. Included in the $2.2 million of other costs are $1.1 million of operating costs of an affiliate of RFX Acquisition LLC, primarily salaries, employee benefits, rent and other overhead costs incurred from November 2004 through February 7, 2005, which were reimbursed by the Company upon closing of the RFX Acquisition LLC investment and the Presley Business acquisition. The remaining costs consist of legal expenses, listing fees, and due diligence expenses.

The company plans to improve Graceland and other Elvis properties to increase revenue. It also has plans to restore Elvis back to Vegas and internationally. This effort is expected to take several years. The company is expected to be profitable this year and increase its profitability next year. The company is fairly valued at the moment and there will be time to buy into the company. Although I do agree with Hilary that this company has potential, I would wait for a couple of quarters to see how the company is executing before jumping into buy this stock.

No comments: