The conversion of AMC shares has finished but strategists expect further dilution

The conversion of AMC shares has finished but strategists expect further dilution

(Bloomberg) — AMC Entertainment Holdings Inc. A week-long sell-off after the movie theater operator converted a slew of preferred shares into common shares, and strategists say the company is likely to sell more shares to pay down debt.

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On Friday, the company converted AMC’s preferred stock units, or APEs, into common stock, ending a long battle after some common shareholders tried to block the move. The day before, the company completed a 10-to-1 reverse stock split.

Those two moves left AMC able to sell about 390 million new common shares, according to company filings, worth about $5.4 billion at current prices. The possibility of more stock sales contributed to AMC shares falling this week, said Chris Colbets, event-driven position strategist at TD Cowen.

“AMC is likely to make a significant capital increase to improve its liquidity position,” Colpits said. He said one way a company can raise money is to sell shares at the market price over time, which is known as a money supply.

Shares of the company fell about two-thirds between Aug. 18 and Thursday, and fell another 11% on Friday to $12.86, on an adjusted retail basis. An AMC spokesperson was not immediately available for comment.

A successful equity raise could help AMC pay down debt and stabilize its finances. The movie theater operator has about $9.5 billion in short- and long-term debt on its books, and although it made about $8.6 million in net income in the second quarter, before that it had posted losses in every period going back to the third quarter. for the year 2019.

“The equity increase will open the way for institutions to re-evaluate AMC as an investment,” Colpits said.

Wedbush upgraded AMC’s rating to Neutral from Underperforming, with a new price target of $19 this week.

Analysts including Alicia Reese wrote in a research note that the company is “well positioned on the back of an improving industry”.

AMC has become a favorite of retail investors during the pandemic, with its shares surging more than 2,800% between the end of 2020 and June 2, 2021, even as many consumers shunned movie theaters. Recently, its shares have fluctuated wildly as traders bet on the possibility of a switch to APE.

Read: AMC-APE betting sounds like easy money, but it’s risky for traders

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