Hello everyone! Today we’re proud to present to you the first in an ongoing series of articles that we’re calling “David’s Data” by our writer David Rose. David is a 21 year old Jamaican, who attended Jamaica College and is currently completing his first degree at the University of the West Indies. He is a three-time quarterly winner in the 2018 Jamaica Stock Exchange/All Media Services’ Young Investors Stock Market Competition. Since gaining popularity for that win, David has been using his story, platform and resources to help other, regular Jamaicans to also increase their level of general financial literacy. This series has been formulated with that goal in mind. A few months ago David started sharing his analysis of companies on his Twitter account (give him a follow). I saw that and thought that it would be a great addition to the site and also aid David in continuing his mission. With that in mind, help me welcome David Rose and get ready for David’s Data! Take a look at his first article below, which is an analysis of the Main Event Entertainment Group. Leave any feedback you have in the comments below or you can send them directly to David at his Twitter account or at our own Twitter or email. - Randy

Main Event - The Caribbean's Dynamic Entertainment Management Company

In the space of event management and execution, Main Event Entertainment Group has become a visible force to be reckoned with. As they’ve grown in impact, they also took care to increase their offerings in order to service the growing entertainment space…before COVID-19 struck. This firm currently dominates the corporate event production & management space, in addition to its new segments which include M Style Rental and M Academy. Today’s analysis will zoom in on this company and analyse in depth its offerings and possible future after COVID-19.

The now 15 year old company specializes in the areas of event management, digital signage, entertainment production, equipment rental and training through its existing and new divisions of business. Their ability to deliver on a successful event and retain most clients comes mainly from the company owning about 95% of their equipment and investing profits heavily back into expansion of its services. This has given the company an edge against possible competitors since they offer a full suite of equipment inclusive of digital signage, lighting, generators, laser lights and confetti cannons, while reducing costs from utilizing third parties.

Led by founders Solomon Sharpe and Richard Bair, the company has a vision to be the go to place for any event in Jamaica and the overall Caribbean. This has seen the firm engaging in the Eastern and Southern Caribbean, as well as Central America, where they continue to build themselves out in a region which desires high quality execution of events. This vision has been supported by continuous reinvestment, utilizing debt and training internal staff continuously to ensure the company can scale up as demand grows for their services. For the last 5 years, they have been growing revenues while attempting to contain certain expenses where the option exists.

List of Known Events executed by Main Event

Jamaica Stock Exchange Regional Investments & Capital Markets Conference
RJR Gleaner National Sportsman and Sportswoman of the Year Awards
Xodus Band Launch
Xodus Carnival
Utech Graduation
Jamaica Independence Celebration
Unruly Fest
Red Bull Culture Clash
Jamaica Rum Festival
Dinner En Blanc
Edward Seaga Funeral
2020 Jamaica Rum Festival

Major Known Clients

Sagicor Group Jamaica
Government of Jamaica
Campari Group Jamaica
Heineken Jamaica
Digicel Jamaica
Flow Jamaica
Caymanas Track Limited
Chukka Caribbean Adventures
NCB Jamaica Limited
Appleton Jamaica Limited
Mayberry Investments Limited
Urban Development Corporation
Dream Entertainment Limited

Financial Analysis

Main Event has managed to grow revenues from $425 Million in 2011 to a record high of $1.8 Billion at the of the 2019 Financial Year (October 31, 2019). This has come mainly from the growth of its Entertainment Promotions segment which has seen the bulk of revenue with an average of 73% with a Compound Annual Growth Rate (CAGS) of 10% over the last 4 years. However, Main Event’s growth in its Audio &Film and M Style segments has begun to create greater diversity for revenue as Entertainment Promotions contributes less to revenue each year. This has been keeping in line with the company’s vision to capitalize on the entertainment and event space in Jamaica and the wider Caribbean.

As the company has been in its pursuit of growth, it has been incurring greater expenses mainly from cost of sales and administrative and general expenses with selling and promotion costs remaining stable. This is expected in a capital-intensive (lots of money) industry which has high input costs due to the movement of equipment and overall event management.

Finance costs have remained relatively low as the company maintains careful use of debt to grow the company forward. This has been evident as the company’s debt to equity ratio remains safely below 0.50X in the last 4 years.

The net profit of the firm has remained stable around $90 – 100 Million in the last 3 years, with taxation varying from $524,000 to as high as $7.1 Million. The junior market tax concession should make tax costs over the next 7 years fairly low and manageable as time progresses.

Entertainment and Promotions

The biggest revenue earner for the company comes from this segment which has been the staple and foundation of the company from its inception. As highlighted from the prospectus, the company is a marketer, planner and executor of many events. This includes working with the client to do research, developing a strategy for deriving greatest value, setting up the event and executing on the remaining areas they were contracted to provide.

The last 6 years has seen this segment grow from $448 Million to $1.25 Billion in revenues with expenses growing at almost the same pace from $600 Million to $776 Million. However, this translated to a growing roster of events to service and in turn new opportunities to build new relationships with potential clients. This segment would have seen the greatest investment due to the need to provide greater solutions for their new and existing clients.

Audio and Film

View this post on Instagram

A post shared by Main Event Entertainment Group (@maineventja) on Jul 2, 2019 at 12:40pm PDT

In the age of technology and communicating with audiences, interactive, clear, LED displays have been used to bring across a message to audiences, which is critical for any high ticket event. However, this segment has an inverse relationship between revenue and expenses associated with generating profits over the last 4 Financial Year. In the 2016 Financial Year, digital signage had a 68% profit margin which saw revenue of $88 Million and expenses of $28 Million. This 60% profit margin continued into the 2018 Financial Year before taking a steep decline to 51% in the 2019 Financial Year. While revenue grew by 31% in 2019, expenses grew by more than 100% which resulted in the lower profit generation. The revenues for the last 6 Financial Years has seen an increase in one year and decrease in the other which subsequently continued in the remaining years.

M Style Rental and Décor (M Style XP)

Main Event’s 2019 Annual General Meeting

At the 2019 Annual General Meeting, CEO, Solomon Sharpe, outlined the company’s aim to tackle and seize more opportunities in the events space. He stated that their next aim is to head to the Western side of Jamaica, specifically the wedding and signature event markets. He outlined that the company was mainly focused on operating from the Eastern side of Jamaica, but highlighted the potential market space which can be tapped into once the company was able to grow its presence. To this end, the company opened a Montego Bay office and invested more into this space which included show rooms and equipment. In its first year of operations alone, M Style had executed 440 events which had 250 service rentals, 180 corporate events and 10 weddings. This division has been active in the signature event and wedding space as seen by recently published newspaper articles.

Revenue from Financial Year 2014 to Financial Year 2019

Within the last two financial years (2018 – 2019), M Style has generated $224.33 Million in revenue while incurring expenses of $137.65 Million. This translates to a 39% profit margin which is good for the company’s newest segment which has only recently entered the signature event and wedding space. This is a good position for the company as it continued to branch out into this area for growth.

View this post on Instagram

With the Christmas season around the corner, we celebrated our Main Family with our annual Christmas Luncheon and Lyme on the grounds of our main office. • • • • #maineventja #fullservice #staff #Christmas #townhall #luncheon #lyme #staffparty #alignment #team #learning #training #eventplanner #jamaica

A post shared by Main Event Entertainment Group (@maineventja) on Dec 23, 2019 at 4:56pm PST

M Academy

In the above mentioned 2019 Annual General Meeting, Solomon outlined the need to train local talent, as the lack of capable human resources started to present challenges not only for the company, but also for the industry. He outlined that only a few persons can operate the 2 MM LED Screen behind him and this was just one of the skills that the company was seeking to build out on through professional training and certification. In its first full year of operation, the division generated $16.8 Million in revenue, but incurred expenses to the tune of $15.21 Million, which left it with a minor $1.59 Million profit.

Even though professional training and certification is seen as a low margin business, M Academy presents an advantage for Main Event as it not only generates income for the company, but it also makes sourcing future talent easier for the company from a human resources standpoint. This is important since talent attrition and unforeseen events could strain the company as it pushes to grow further in its new pursuits.

Balance Sheet Analysis

With the company focused on being a main service provider to their clients, Main Event has focused primarily on expanding their balance sheet in order to service their growing events list. As such, the company has doubled its asset base every 5 years with a mixture of debt and equity to finance this expansion. This has resulted in the total asset base expanding from $204.5 Million in 2011 to $1.03 Billion in 2019. Total liabilities have grown at a similar pace with total liabilities moving from $111.2 Million in 2011 to $450.9 Million in 2019. This combination between high asset growth and low liabilities has allowed for the equity base of the company to grow at a steady pace as well from $93.3 Million to $578.8 Million over the same time frame.

Under the non-current assets (primary operating assets of the company) area, the Property, Plant and Equipment (PPE) of the company has grown rapidly from $124.8 Million to $646.5 Million in 9 years. The primary investment in the tools of the company has allowed for them to grow their top (revenue) and bottom line (net profit) at a similar pace. This included equipment for events such as audio systems, LED systems for digital display, furniture and assortments along with generators to supply events at certain remote locations.

The current assets have grown as well from $79.7 Million to $380.5 Million which is a testament to the company’s growth over the years. However, the majority of these assets have been in the form of receivables which has always resulted in the company being nimble in how it used its cash resources. On analysis of the receivables, the company has had a lower cash conversion with about 30% of its receivables being past the 90 day mark. Despite the company only writing off a small portion of this as bad debt, it has meant that the firm remains very selective of its clientele and careful on spending its cash. However, as the CEO has highlighted, the industry is one which operates with a longer cash conversion cycle due to some of its larger clients taking time to get approval from their head office on payments.

Under the non-current liabilities area, the company has managed to keep this balance small due to prudent debt management. This led to it having no long term debt (excluding MEEG Holdings Loan) in 2017. As a result of the capital injection with the IPO in 2017, the company decided to expand this area again and has long term debt over $137 Million at the end of 2019.

The current liabilities of the company have been primarily made up of payables, bank overdraft and current portion of long term loans over the last 9 years. The bank overdraft facility has allowed for the company to utilize an alternative means of credit and keep cash on hand for use in daily operations. Even though it is an expensive form of debt (12% interest rate), the company has always managed to keep it below the $30 Million mark excluding 2 years. Payables have grown from $36.3 Million to $167.5 Million over the 9 year period which was an indirect indicator of the confidence by the company’s vendors that they could settle the bill when it came due. The current portion of the long term loans wasn’t a significant concern due to the structure in which the debt was to be repaid.

Cash Flow Analysis

The company has been mainly free cash flow negative over the last 9 years excluding 2011 and 2016 as they reinvested primarily into equipment for future operations. This led the firm to utilize financing activities to supplement its expansion while remaining financially viable. Despite this heavy spending, Main Event has seen its cash flow from operations significantly expand over the last 2 years since its IPO which is an indirect indicator of its steady progress in generating more cash from its activities.

Industry Analysis

Main Event primarily operates in the entertainment space which has been growing significantly over the last decade as the macroeconomics of the economy have been improving. As highlighted from the PIOJ’s Economic and Social Survey, there has been a steady uptick in the number of approved licenses for events over the years with the latest data showing a 5% increase to 22,560 events. The tourism sector as well has seen more than 500,000 new stopover arrivals into the island over the last 5 years. This is an important indicator since many people come to Jamaica to enjoy the various events such as Music Festivals and other major events such as Carnival every year. Many new events have sprung up in the last decade as people sought entertainment, a common gathering or just to have new experiences in their lives.

Main Event has highlighted they provides their services to Anguilla, Antigua, Aruba, Barbados, Bonaire, British Virgin Islands, Cayman Islands, Curacao, Dominica, El Salvador, Grenada, Guyana, Haiti, Martinique, Montserrat, St. Kitts & Nevis, St. Lucia, St. Vincent, Suriname, Trinidad & Tobago, and Turks & Caicos. This indicates the level of demand that exists from neighbouring territories for event management and execution. Before COVID-19, growth in the region had been slowing down, but tourism was still buoyant as people travelled to the region for various reasons.

The local commercial banks have also been providing more loans to the entertainment industry as highlighted from BOJ data showing $2 Billion in outstanding loans, with NCB and Sagicor leading the charge in supplying the demand. In relation to non-performing loans, the industry had less than 0.2% of loans being under that classification which indicated the ability for the formal entities in the sector to service their loans.

Market Analysis

Main Event was listed on the JSE in 2017 on the 8th of February and had an IPO price of $2. The offer was oversubscribed by 461% which saw applicants excluding Mayberry Jamaican Equities getting only 3000 units guaranteed and a less than 3% excess allocation. These factors resulted in the stock increasing by 200% in 2 days with a substantially large volume of the free float (shares for sale other than MEEG Holdings) being traded on day 3 to the tune of 15.7 Million units (26% of the original shares for sale). Within 3 months, it traded as high as $8 for a 300% return for those who bought at the IPO. In the first year of trading, the stock had an average volume of 126,000 units. However, the stock started to trade between a band of $5-8 up to the end of 2019. There was sufficient volume being traded of the available free float (6.48% not controlled by top 10, directors and known unit trust holdings) with low insider buying or selling which made it liquid in the context of what was available on the market.

The stock remained fairly stable over the TransJamaica IPO period with trading occurring between the $5.20 - $6.40 band. However, with the first COVID-19 case confirmed on March 10, there was panic selling with the stock diving by 32% in 5 days with it hitting a new low of $3.20 which was the lowest the price has been since its IPO. In the last 2 weeks, the stock has trended up and settled at $5 as sellers hold off on selling any lower to the market.

In the context of a Price to Earnings (PE) ratio perspective, the stock has started to trade below the junior market average (22X) with its current PE being 10.87 at a price of $4.83. In the past, Main Event traded at an average PE of 17.77

In relation to the Price to Book Metric, Main event’s PB has been steadily declining as well and is now firmly at 2.25X. In the past, Main Event traded at an average PB of 3.36.

Quarter 1 2019/2020 Analysis

Main Event had its best Q1 performance in its history as revenues grew by 31% to a new high of $598 Million which was its fourth consecutive year on record for an increase quarter over quarter. This could be further signified from its bottom line (net profit) which grew by 122% from $31.6 Million to $70 Million which was driven by expenses growing at a slower pace than revenue growth. When one looks at prior quarters, the first 2 quarters are where the company generates most of its profits while the subsequent 6 months are low income periods for the company. Thus, for the company to have achieved such a feat in the span of 3 months is beyond impressive. In the context of comparing the financial year, Main Event generated 72% of its entire 2019 FY net profit in just 3 months without any significant additions happening during the quarter.

Direct Expenses for Respective Segments from Financial Year 2016 to Financial Year 2019

When one looked at the balance sheet, the company was able to generate a significant amount of cash ($76.4 Million) while paying down on their bank overdraft facility which saw it reduced from $44.7 Million to $6.8 Million ($38 Million reduction) in 3 months. The company added new PPE (property, plant and equipment) as well which saw the non-current asset segment of the balance sheet surpassing $650 Million for the first time. This was a critical stage for the company when analysing where it’s coming from with a PPE base of $280 Million in FY 2015. These results have pushed the total assets of the company to $1.05 Billion up by $24.8 Million 3 months ago.

The total liabilities of the company decreased by $45.2 Million with non-current liabilities making up the big portion of this decrease to $405.7 Million. The decrease in bank overdraft would see a lower interest cost in the current term for the company. This was a good position for the company to have this kind of decrease going into its next big quarter.

Cash flow from operations were significantly up with the company generating $135.1 Million for the quarter which is the highest amount ever generated in one quarter. With this high cash generation, the company was able to recognize positive free cash flow (cash flow from operations – Purchase of PPE) of $97.5 Million, which is rare for a company which is in constant expansion mode and historically had negative free cash flow since inception. This was also one of the few periods where the company took out no new loans and saw a lower loan repayment balance for the quarter.

Post Quarter 1 Analysis

Main Event paid out a dividend in early March to the tune of $27 Million while also executing on the Jamaica Rum Festival which was a big ticket event for the company. However, on March 10, Jamaica recorded its first confirmed case of COVID-19. During that week, Carnival in Jamaica was postponed until October and every other event (big, small or large) was postponed or cancelled as the government implemented restrictions on public gatherings which were limited to 20 persons (subsequently 10) while party permits were cancelled as well. This has basically frozen the company since it cannot serve any of its clients locally or in the region as each country implemented their various restrictions in addition to the fallout in the airline industry. Employees are effectively stuck at home without continuous pay while the company is attempting to collect on its bad debt and outstanding receivables from its various clients. As highlighted from the last 2 audited financial statements, 28% of outstanding receivables are beyond the 90 day mark and usually have a high expected credit loss (71%) due to the likelihood that these receivables cannot be collected from those clients. Since the company’s events usually require a formal space (inside or outside) to operate, there is no possible means for the company to generate revenue for the foreseeable future.

Current Advantages During COVID-19

The company will have lower administrative expenses to pay since there would be less staff present at any of its offices or performing any paid jobs. Also, they can possibly renegotiate some of their current lease payments due to the situation. They can also negotiate with their parent company (MEEG Holdings Limited) for a loan or utilize their overdraft facility if needed to cover any current (short term) liabilities which may arise. Since the company is listed on the junior market, they have no income tax payable excluding certain tax obligations until February 2022. Also, any tax losses the company incurs could be used against future tax liabilities under the Tax Act.

Future Implications on Duration of COVID-19

The longer COVID-19 remains a global pandemic and public threat, the greater risk the company faces in being unable to stage big ticket events from major clients who will scale back on non-core spending. This would present a problem for the company as it would impact the ability to collect on its receivables which tend to take longer to collect than other businesses due to the nature of the industry. Also, with the company paying a dividend recently, its cash resources are lower now despite having completed almost half of quarter 2. Numerous events which were scheduled to be held this year will be moved to 2021 or will be held later during the year will impact cash flows significantly during the year. The impending recession will negatively impact the ability for clients to stage future events as tourism and air travel remain frozen while the general populace will avoid non-essential spending as savings diminish amidst the pandemic. The company will have to scale back expansionary plans which includes equipment purchases as long as the uncertainty of COVID-19 looms in the air. With all these implications, shareholders can kiss goodbye to any dividends for the next 3-4 years as the company pushes to recover lost ground and build back up its cash base as well. This perfect storm will put the company’s resilience to the test as it will have to survive for as long as it can before seeing the light at the end of this dark road.

Until next time, stay safe, maintain your distance and #TanAhYuhYard as we try to flatten the curve with COVID19. Look out for the next article on Lasco Financial Services and the impact COVID-19 is expected to have on them.

-David Rose

Note: This article is not intended to be financial advice or come off as a stated buy, hold or sell position against this company. I am not a licensed financial advisor and this article is intended to provide oversight and information on a listed JSE company.

References

https://www.jamstockex.com/wp-content/uploads/2017/01/Main-Event-Entertainment-Group-Final-Publication-Version-17-January-2017.pdf (Main Event Prospectus) -

https://www.jamstockex.com/wp-content/uploads/2020/03/MAIN-EVENT-ANNUAL-REPORT-2019.pdf (Main Event 2019 Annual Report)

https://www.jamstockex.com/wp-content/uploads/2019/02/MainEvent-AnnualReport2018-Single.pdf (Main Event 2018 Annual Report)

https://www.jamstockex.com/wp-content/uploads/2018/02/MAIN-EVENT-ANNUAL-SINGLE-JSE.pdf (Main Event 2017 Annual Report)

https://www.jamstockex.com/wp-content/uploads/2020/03/MEEG-Unaudited-Results-Q1-Three-Months-Ending-January-31-2020.pdf (Main Event Q1 Report)

https://maineventjamaica.com/ (Company Website)

http://www.jamaicaobserver.com/vows/passcode-passcode-passcode_182186?profile=1237 (Gordon Swaby Wedding Photos from Jamaica Observer) – GS

https://maineventjamaica.com/assets/meeg-annual-general-meeting_march-26-2019.pdf (Main Event 2019 AGM Minutes)

https://maineventjamaica.com/assets/meeg_-agm_9-4-18_minutes.pdf (Main Event 2018 AGM Minutes)

http://jamaica-gleaner.com/article/business/20170201/main-event-entertainment-group-ipo-oversubscribed-553m (Main Event Oversubscribed)

https://www.facebook.com/pg/MainEventJa/photos/?tab=album&album_id=2950300788324187 (Jamaica Rum Festival Photos)