A day with Bass-T at the nightclub - Analysis of the pole dancing business by RCI Hospitality Holdings Inc. $RICK (+2,6%)
Hello dear friends of the night!
Today it shall be about RCI Hospitality Holdings (RICK) a holding company which, through a subsidiary, belongs to the adult night entertainment industry and belongs to the group of so-called sin stocks . That is, stocks that are categorized by some as ethically questionable because of their line of business and/or activity in the marketplace. In addition to tobacco, gambling and weapons manufacturers, these also include the so-called erotic business, to which parts of RICK can also be assigned (see (1),(2)). Beforehand as always my Disclaimer:
Disclaimer: This is not investment advice. It is also not an invitation to buy or sell financial products. I am only describing my own opinion here. You have your own responsibility towards your investments. No liability.
After my erotic and tobacco article, I now present another so-called "Sin Stock".
I am better, I do not have such Sin Stocks.
Unlikelythat this is true. While Altria, for example, as a tobacco product manufacturer, is listed in the S&P 500 and even S&P 100 RICK is also listed in the Russel 3000 & 2000 in its facet as a nightclub operator. Russel 3000 & 2000 Index. In addition, Altria and Phillip Morris are also included in the MSCI World and thus ACWI. So without a suitable ESG or SRI filter, it is difficult to avoid these giants. But who is RICK and what stock market history does the holding company look back on?
For clarification, as always, here is my brief outline
1.RCI Hospitality Holdings Inc (RICK) in bare figures
1.1RICK's stock market history - An off-the-shelf business model? Analysis of the business segments
1.2RICK's stock - A hot pick? Analysis of the share
2.personal conclusion
1.RCI Hospitality Holdings Inc. (RICK) in bare figures
1.1RICK's stock story - An off-the-shelf business model? Analysis of the business segments
In general, RICK's stock is tradable on NASDAQ and looks back on a history of meanwhile 27 years since its IPO in 1995. Also the web presence of the company contains a proud reference to the long stock exchange affiliation (see (3), (4), (5)). But why do I deal with this share?
In a broad study, UBS has found an interesting interplay of these "sinful" stocks compared to the MSCI World. Starting in 2021 and analyzing the last 43 years, the largest 50 sin stocks have delivered the return of the MSCI Worlds - PLUS 5 percent annually. This intentionally includes the last 3 years from 2018 to 2021, as Sin Stocks lost here compared to Crypto, etc. It can be exemplified in the study that investors, if applicable, are more focused on the stable business of a tobacco manufacturer or nightclub operator in times of crisis than in "normal" times in bull markets. That's why I find the study of this sector quite exciting. In addition, RCI announced a dividend in September this year, so it may be exciting in that regard as well (see (5), (6)). But what exactly does RICK do?
Essentially: Nightclubs and Bombshells. Let's start with the nightclubs first.
If you visit RICK's website, it quickly becomes clear that they make no secret of their affiliation with the night business. In fact, after a short introduction to the company's history, a list of all the well-known RICK brands follows, such as "RICKs", "Club Onyx", "Temptations", "Foxy's Cabaret" and "Heartbreakers". I have deliberately chosen these 5 from a given brand portfolio of more than 21 given brands, because they reflect in detail the respective marketing orientation of the clubs. Even now, when we know nothing more about Rick than night club, stock market listed and something with eroticism, we can already see that the group operates different club brands. The names of these clubs already indicate different emphases of the 1983 founded in 1983. If we select the club Onyx as an example, we get to an official club page with 4 specified locations.
Doesn't itch?
Itches massively - who already clicks on one of the locations overlooks an essential feature of RICK: The licensing business. St. Louis and Indianapolis are exemplary no native-affiliated clubs to RICK but only licensed clubs with own names but affiliation to RICK. According to the 2020/2021 investor report, there are therefore a total of 48 establishments which, in addition to nightclub activities, also include restaurants also restaurants and bars included restaurants and bars. These were hit hard by closures due to the Corona pandemic and were unable to show a positive cash flow due to the lack of customers. In order to regain its former strength, RICK has therefore, among other things, not terminated employees but given them leave of absence, in particular relieved ordinary employees by immediately paying outstanding wages and has asked for an increased focus on cost reduction in the marketing sector as well as deferral of interest payments (see (8),(9)).
Were there any aid programs from the state?
In theory, yes - in practice, it was more of a "Jain". A particular problem was that not every business received aid payments from RICK, let alone in the same amount. The company itself lists that the so-called "Paycheck Protection Program" (PPP) didn't see a dime to the nightclubs and other branches that weren't part of RICK's core business. Instead, only 10 restaurants received a payment ranging from $271,000 to $579,000, which ultimately amounted to $4.2 million. At least one lounge received USD 124,000 on top of that. Apart from one of RICK's subsidiaries, which received an additional USD 1.1 million, all nightclubs, and thus an integral part of RICK, came away completely empty-handed (see (9)).
Does "aid program" mean that RICK does not have to repay the costs of the PPP?
No. In fact, the PPP is linked to requirements from a directive called "CARES ACT"(CA). The CA specifies that only certain investments in infrastructure of bars, restaurants and clubs are eligible for debt relief. In total, RICK has submitted this debt relief application for 12 PPP assistance programs and has received 100% approval for 10 of them. The remaining 2 PPP aid programs are named in the currently available report as doubtful with regard to debt assumption, so that I assume that they will not be approved for the time being (cf. ibid.).
Why should I be interested in this as an investor?
In my perception, in an environment of rising interest rates, more expensive money on the capital markets, and general uncertainty of supply for renovation and investment materials, there is almost nothing more important than analyzing financial security. Specifically, we are talking about $4.9 million that RICK will not have to repay through the PPP. If we assume that all the debt incurred is in the report, that is still 4.9 / (4.2 +1.1 + 0.124) = 4.9 / 5.424 = 90.33% debt forgiveness under the PPP program. Measured against this, RICK has thus survived the Corona pandemic relatively unscathed from the debt side in my opinion (cf. ibid.).
On the other hand, RICK's management is surprisingly transparent about how individual business units were hit, revealing the extent of the crisis as well as individual management decisions. While the nightclubs, as mentioned above, received no help, it was precisely here that profits fell by 41%. The operating business even fell by 74% overall compared to the previous year. Store sales fell by 41.7%. All in all, then, not a very pleasant outlook for a group that makes its money from alcoholic beverages, food, dance services, etc. For a complete overview of RICK's amazingly diverse product portfolio, I briefly list it (cf. (9), (10), (11)):
- Alcoholic Beverages & Food
- Merchandise goods
- Admission and protection fees
- Dance services
- Room rentals
- Participation in ATM withdrawal amounts
- General sales revenue
It is noticeable, then, that while RICK makes a profit via nightclubs, it pretty much has any access to profits to profits. At the same time, it is noticeable that the falling profits during Corona could not be compensated structurally even by the diversified product and club portfolio. Simply argued, one could claim that if clubs are closed or their opening hours are severely restricted, many products from the above-mentioned can no longer be offered in the first place. In times of "stay safe, stay at home" for example, no dance service can be offered. If no dances are booked, probably also no compensating fee for the rented rooms or in case of their possession for their heating and electric supply can be earned. Without this line of business, RICK is almost competing with ordinary bars and restaurants - so in combination with the above facts about employee leave, they will not be available to work in the other lines of business. Means at the same time: less dancing, less money, less customers, more costs, less ATM participation and access fees. In general, therefore, a relatively logical chain (cf. ibid.).
So has RICK been spinning on its own axis? (IQ 5000 metaphor)
No - they actually bought an additional and expensive club in terms of debt - for $15 million. This one serves more upscale needs and should further expand the portfolio. The reason I mention this is that this falls within the Corona pandemic period with November 2019. Nevertheless, this deal has been held on to, although the nightclub segment was disadvantaged by (cf. ibid.):
- failure to receive aid via PPP and CARES ACT.
- Exclusion of integral performance spectra (private table dancing, dance performances, etc.)
- Needed transformation of focus from actual side shows.
What is the other business segment of Bombshells doing? Is that where the corks pop on a regular basis?
Bombshells are essentially a Fusion of a sports bar, restaurant and military-style military styleThe club has comfortable sofas, sports broadcasts on 75 huge flatscreens and staff in military dress code. These are usually women, who are employed for the purpose of animation and to support a good atmosphere at the corresponding club and also act in parallel as a waiter. A socially as well as physically strenuous activity - anyone who has ever carried a tray through a crowd of people will be able to understand this. In general, the Bombshell business, like the nightclubs mentioned above, can be franchised via a licensing program. By 2020, there were 10 Bombshells - all in Texas despite a licensing program that was approved for all 50 states according to RICK. So there may still be a need for growth here. The Bombshells' product mix is clearly dominated by alcoholic beverages - 63% of revenue comes from these beverages and only 37% is jointly driven by food, merchandise and other Bombshells products.Despite Corona pandemic, this segment increased its revenue by 40%, which is a strong performance compared to nightclubs. Is this performance also reflected in the capital market? Or do the worries and fears of the nightclubs dominate there (see (9), (12), (13)).
1.2 RICK's Share - A Hot Pick? Analysis of the share
Now that we have learned about RICK's stock market history, the specific requirements of its business segments, management's handling of the Corona pandemic, and RICK's structural problems, let's take a look at key indicators of the stock below.
A look at (13) already reveals by mere observation that RICK operates 100% of its nightclubs, bombshells, etc. in the U.S. market and that the effect described has been substantially reduced by the importance of the bombshells. Thus, due to the Corona pandemic, there was still a 67% to 33% differential from the nightclubs to the bombshells. A year later, we're already talking about a 70.3% to 29% split. So even though the Bombshells, with their innovative "we watch sports in huge penthouse-like buildings and enjoy the military-erotic flair" package, increased in revenue by 31.02% compared to 2020 to $56.62 million, the percentage gap widened. Nightclubs increased its revenue by 55.42% and now stands at approximately USD 137.35 million. What is exciting here is that the "Other" segment has grown the most by 74.42%. This includes clubs and products that cannot be clearly assigned to either of the two segments (see (13)).
Thus, RICK is looking at $195.26 million in revenue in 2021. This is part of a positive string of news that makes a revival of the nightclub sector theoretically conceivable. Currently, according to the press release, the numbers for 2022 look very positive, as both segments have increased in revenue by 29% each. It remains to be seen how much of this is still due to the Corona effect (see (13), (14)).
Debt: Net debt has also fallen from $152 million to $113 million. This means that while sales are increasing, debt is decreasing. For 2022, 2023 and 2024, growth of just under USD 30 million plus per year is expected, which should reduce the P/E ratio for these years from 16.5 to13.3 times. The price-to-book ratio is also expected to fall from 3.36 times to 2.14 times and the enterprise value to remain constant at around USD 900 million (see (14), (15)).
What does this mean?
When the P/E ratio falls, the market capitalization is valued lower than the earnings. This means that e.g. a) the number of shares has been reduced via a share buyback program or b) the profit has increased or c) the share price has fallen while profit expectations remain unchanged. If the P/B ratio falls, one tends to receive more book value in the company or, synonymously, can receive more shares for the same amount of money (cf. (16), (17)). In the case of RICK, a falling P/E ratio should make the stock cheaper by increasing sales while the market value remains the same. The P/E ratio, in combination with the constant book value of the company, indicates that the company will not increase in value, but that the share price might rather adjust to the real value. In general, these statements are the opinions of analysts, which I have briefly outlined from the data provided in (15). Of course, this euphemistic attitude of the analysts suggests a look at their concrete recommendations for action (see (15), (16), (17)).
Unfortunately, due to the niche character of this investment, a small problem arises here: of 3 analysts, only 2 can be persuaded to make a statement. Both of them recommend buying the stock, while the third has no opinion. If we look at the lowest, average and highest price target, both analysts are very positive and see a growth of min. 18.4% up to 30.3% or 42.1% in the optimal case. Currently, RICK is trading at 84.21 USD and therefore has a medium price target of 110 USD. If one looks at the analyst recommendations in the 2-year corridor, the buy recommendation of Noble Financial made in February 2022 stands out, since this was made shortly before a slight slump of the share from 70 USD to 50 USD by thus approx. 29% (see (18)). Therefore, I would like to point out again that this is no investment advice and/or invitation to buy/sell financial products. Even analysts can be wrong or name an unfavorable entry point (cf. ibid.).
How does RICK perform in a sector comparison?
Finally, in order to roughly assess how strongly RICK's stock performs compared to the market, a comparison with the field of competitors from (19) shows that RICK is the best performer among its competitors within one year, with comparatively high volatility. In addition, all competitors are valued at a relatively worse P/E ratio, whereby we compare a 780 million USD business with restaurant industry giants such as Starbucks and McDonald's (see (19)).
For the purpose of sector comparison with direct market environment, I deliberately chose the Ishares Russel 2000 ETF and the Advisorshares Restaurant ETF. The former is the largest ETF containing RICK stocks and the latter is the largest thematic ETF containing most RICK stocks. A one-year comparison shows a significant outperformance of RICK vs. the two ETFs. We are talking about (cf. (19), (20)):
- RICK: 24.53%
- Ishares Russel 2000: -18.95%
- AdvisorShares Restaurant:-10.28%
So we see that Restaurant delivered stronger numbers than Russel 2000, but still both ETFs were negative. So in comparison, RICK has delivered a solid performance. But how expensive is RICK by comparison (see ibid.)? The P/E ratio of the issues ETF is 28.67 P/E and 10.38 P/B ratio. According to (21), the P/E ratio of the Russel is 51.1. Thus, it can be seen for the first time that RICK, in its role as a restaurant and bar operator, is performing more favorably relative to the market, or is currently outperforming its ETFs. This tends to be desirable, but further questions remain:
- What are the future prospects for Bombshells?
- Why is the licensed business not getting off the ground?
- Why are the licensed clubs all in Texas only, when USA-wide distribution is allowed?
- What are the roles of future dividends?
2. personal conclusion
We now have a first inkling of RICK in terms of. Business areas, challenges, market performance and management's handling in times of crisis.. In my perception, RICK is an interesting company in a rather small market capitalization environment, which I will definitely keep on my watchlist. Currently, there are still too many unanswered questions for me. Especially the dividend from (5) with 0.31% does not look interesting enough to me that I personally would invest now. Therefore, from my point of view, a statement from the management on the concrete future of the dividend, which has been paid since 2016, is very desirable (see (22), (23)).
If RICK has interested you, I look forward to your feedback. I'd be happy to do another video on this as well, since frankly I've noticed that, contrary to Getquin on YouTube, you guys rate my dividend introduction videos better than the theme videos. If you still haven't had enough of $BATS (+1,52%) can find that below :D
I'm also happy to address individual aspects in a next post. I am happy about every constructive contribution and followers!
Your Bass-T
https://www.youtube.com/watch?v=RkrJDHcF7MI&lc=UgxLE-38T4gbkiPfeAN4AaABAg
#aktien
#aktienanalyse
#dividende
#dividenden
#value
Sources
(1) https://www.rcihospitality.com/default.aspx
(2) https://www.investopedia.com/terms/s/sinfulstock.asp
(3) https://www.boerse.de/aktien/zugehoerigkeit/Altria-Aktie/US02209S1033
(4) https://www.rcihospitality.com/557/pressrelease.aspx
(5) https://www.finanzen.net/nachricht/aktien/rci-hospitality-kuendigt-dividende-an-11680636
(6) https://www.finanztrends.de/aktien-eine-suende-die-sie-nicht-in-ihrem-portfolio-haben-sollten/
(8) https://www.rcihospitality.com/investor/default.aspx
(9) https://www.annualreports.com/HostedData/AnnualReportArchive/r/NASDAQ_RICK_2020.pdf
(10) Cover charge. The American Heritage Dictionary of the English Language (2009)
(11) https://www.lawinsider.com/dictionary/atm-fees
(13) https://de.marketscreener.com/kurs/aktie/RCI-HOSPITALITY-HOLDINGS-17283950/unternehmen/
(15) https://de.marketscreener.com/kurs/aktie/RCI-HOSPITALITY-HOLDINGS-17283950/fundamentals/
(16) https://www.finanzen.net/ratgeber/kgv-kurs-gewinn-verhaeltnis-berechnen
(19) https://de.marketscreener.com/kurs/aktie/RCI-HOSPITALITY-HOLDINGS-17283950/charts-sector/
(20) https://www.etf.com/stock/RICK
(21) https://www.etf.com/EATZ#overview
(23) https://a2-finance.com/de/issuers/rci-hospitality-holdings/dividends
