T4F Entretenimento SA (SHOW3), rebounding from the loss of Cirque du Soleil, is poised to become Brazil’s leading show promoter as rivals including Eike Batista’s IMX wane and their assets become acquisition targets.
Time 4 Fun’s bookings include Black Sabbath and Justin Bieber, along with winning the Sao Paulo edition of the Lollapalooza music festival on Aug. 5 as an industry bidding war ends. That’s positioning the company to recover from what will be a weak 2013, according to Guilherme Ferreira, who manages 250 million reais ($102.7 million) as chief executive officer of Teorema Gestao de Ativos Ltda.
“This is a growth industry, we’ll see explosive growth in the mid-term,” said Ferreira, whose firm held 2.7 percent of the stock as of July 31, based on data compiled by Bloomberg. “The company can plan for the future, it’s looking ahead five years from now.”
Time 4 Fun scooped up Lollapalooza from Geo Eventos, of the Organizacoes Globo media group, which ran the event this year and declined to bid on it again as a strengthening U.S. dollar against the real made international acts more expensive. IMX, which helped send Time 4 Fun’s shares reeling by wooing away Cirque du Soleil in 2012 with a 20-year contract, has now stopped searching for new business, CEO Alan Adler said in a telephone interview on Aug. 15.
Time 4 Fun, based in Sao Paulo, fell 59 percent in the past year through yesterday to trade at 13 times estimated 2013 earnings, according to data compiled by Bloomberg. That compared with a 13 percent decline for Brazil’s Ibovespa index over the same period. The company’s largest peer in the U.S., Madison Square Garden Co. (MSG:US), gained 50 percent in the last year to trade at 33 times projected earnings, the data show.
Time 4 Fun has 6 buy ratings and 1 one sell recommendation among analysts surveyed by Bloomberg. The shares rose (SHOW3:US) 1.4 percent to an intraday high of 7.26 reais at 1:27 p.m. in Sao Paulo.
Entertainment demand rose last year as the Brazilian real strengthened against the U.S. dollar and the middle class expanded, spurring competition for bookings by performers including Madonna and Lady Gaga.
Time 4 Fun won the rights for those two shows and then lost money after failing to sell out the events and generate enough sponsorship revenue, Bahema’s Ferreira said in an interview from Sao Paulo. A spokesman for Time 4 Fun declined to comment.
Losses were worse for the competition, all closely held companies, said Bruno Piacentini, a partner at Fama Investimentos, which manages 1.3 billion reais and holds 5 percent of Time 4 Fun. Geo, XYZ Live and Time 4 Fun combined had losses before interest and other items of 68 million reais last year, according to Nau Securities Ltd.
A spokeswoman for Geo declined to comment about the company’s performance, as did a spokeswoman from Engaje! Comunicacao Inteligente on behalf of XYZ Live.
Net income for Time 4 Fun’s latest quarter fell 19 percent to 10.9 million reais, according to a regulatory filing.
“If you look at Time 4 Fun, which is bigger than its competitors, its results were bad, but compared to the rest, it was much better,” Piacentini said in a telephone interview from Sao Paulo.
IMX has yet to announce its Cirque du Soleil schedule and Geo is reducing its activities, Piacentini said. Analysts at Nau Securities said XYZ Live is reported to be looking for long-term funding and is expected to outsell Time 4 Fun this year.
“T4F is taking advantage of the fact that the sector has been hurt and it wasn’t as badly hurt,” Piacentini said.
Cirque du Soleil will announce shows for 2014 and 2015 within 60 days, IMX’S Adler said. IMX is a joint venture between IMG Worldwide Inc. and EBX Group Co., the holding company of former billionaire Eike Batista, who is restructuring his holdings after failing to produce results. IMX has never been for sale and has no intention of selling assets, contrary to press reports, Adler said.
IMX doesn’t intend to go after new business, Adler said.
“Today we’re in a phase that instead of trying to get new business we are focused on operations and profitability,” Adler said.
Time 4 Fun would be interested in buying IMX’s 50 percent share in Rock in Rio, and Cirque du Soleil “will come back, but under different conditions,” Ferreira said.
Renee-Claude Menard, a spokeswoman for Cirque du Soleil in Montreal, didn’t immediately respond to a voice mail message seeking comment yesterday.
Competitors will largely disappear as Time 4 Fun becomes the industry leader and buys rivals’ most attractive assets, Ferreira said. The weakening real against the dollar will limit the number of international acts as it becomes more expensive to bring them to Brazil, he said. The currency impact won’t be immediate as Time 4 Fun has hedged for the next 18 months.
Sponsorship of shows, which has fallen 55 percent in the most recent quarter, is a risk factor, Ferreira said. Brazil’s economy grew at an annual rate of 2.2 percent in the first quarter of 2013, and sponsors are looking to the 2014 World Cup and the 2016 Olympic Games in Rio de Janeiro.
“Everyone is holding back their cash because of the economy,” Piacentini said. “But it looks like the deceleration is not coming in the magnitude people had expected.”
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