NEW YORK, June 7, 2004 (PRIMEZONE) -- The following is an investment opinion issued by Investrend Research Syndicate:
Investrend affiliate Fundamental Research Corp. has released a research note on VHQ Entertainment Inc. (TSX Venture Exchange:VHQ) that uses the multiples implied in the recent Quebecor Inc.'s (TSX Venture Exchange:QBRa) Quebecor Media unit acquisition of Jumbo Entertainment (TSX Venture Exchange:JUM), and applies them to VHQ in a "what-if" exercise.
The following is a summary of the 2-Page research note, which is available free at www.fundamentalresearchcorp.com.
According to analyst Brian Tang, CFA, on May 20, 2004, Jumbo Entertainment Inca., a network of about 105 franchised video stores across Canada, announced that it was being acquired by Le SuperClub Videotron ltee "LSC", a subsidiary of Videotron ltee, which is a subsidiary of Quebecor Media Inc. (partially-owned subsidiary of Quebecor Inc.) for about $7 million. Le SuperClub operates about 185 retail video stores in Quebec.
The analyst notes that JUM's most recent EBITDA for the year ended February 29, 2004, was $699,211. This implies that LSC paid about 10x EBITDA for JUM. Looking at the transaction from a multiple of sales basis, JUM had revenues of $9.5 million for the year ended February 29, 2004. This implies LSC paid about 0.74x sales for the entire firm. The analyst then applies these multiples to VHQ, and comes up with a range of implied values of $1.05 -- $4.69. Tang says, "It is clear from this exercise that at the current price of $0.56, VHQ is undervalued." The report cautions that the difference in business models between VHQ and Jumbo (VHQ stores are corporate owned vs. Jumbo's franchise model) may make a direct comparison difficult, but Fundamental still feels that the recent Quebecor/Jumbo transaction lends support to their fair value estimate of $1.20 for VHQ.
Fundamental maintains its BUY-3 (Average Risk) ratings and fair value of $1.20 on VHQ.
Fundamental Research Corp. is an affiliate of Investrend Research and a member of the FIRST Research Consortium. Both subscribe to the "Standards for Independent Research Providers" at http://www.firstresearchconsortium.com.
The company has paid Fundamental a research fee of $16,500 upfront to ensure independence.
Complete information about this company is available at the company's InvestorPower page at http://www.investrend.com/company/list.asp?sPathParam=yes, and the full report is available at: http://www.fundamentalresearchcorp.com/PDF/vhq0604note.pdf and www.investrendresearch.com. Investors are advised to read disclosures carefully before trading in the equities of any enrolled company.
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