We first recommended Amalgamated Holdings Ltd (ASX: AHD) in a December 2011 In Focus on Australia-based consumer-focused stocks. Since that article, The Australian Consumer and Picking Apart a Shopworn Sector, was published on Dec. 16, 2011, Amalgamated has generated a total return in US dollar terms of 31.08 percent.

We boosted our buy-under target on the stock to USD6.50 in the July In Focus feature and then raised it to USD7 in August.

The stock hit a closing high of AUD7.10 on the Australian Securities Exchange (ASX) on Oct. 19, 2012, but has since backed off to AUD6.67, which puts it back below our recommended buy-under target of USD7. At these levels the stock is yielding 5.9 percent.

We’re taking advantage of the recent selloff to add Amalgamated Holdings to the AE Portfolio Aggressive Holdings as a buy under USD7.

The primary reason we’re adding Amalgamated to the Aggressive Holding and not the Conservative Holdings is that it doesn’t trade on a US exchange. Its ordinary share is listed on the Australian Securities Exchange (ASX) under the symbol AHD, while it’s also listed on the Frankfurt Stock Exchange under the symbol AQH.

Amalgamated has more than 1,000 movie screens in Australia, New Zealand and Germany. “The movies” has the reputation of a “recession-resistant” industry that dates to the Golden Age of Hollywood in the 1930s and ’40s, but this perception is somewhat removed from reality.

It’s true that movie-going represents a cheaper entertainment alternative during times of economic distress, but the most significant factor in box office numbers remains the quality of the product exhibited.

According to the Motion Picture Association of America global box-office receipts for all films released around the world in 2011 reached USD32.6 billion, up 3 percent over 2010 and 35 percent higher than five years ago. The rise in global sales reflects the rapid growth in overseas markets, particularly China, where box office grew by 35 percent to USD2 billion in 2011 alone.

But it’s still all about the movies. In 2009, amid the Great Recession, North American box office increased 6 percent to 1.42 billion admissions, the best year-over-year increase since 2002. And the category of “frequent moviegoers” increased to 11 percent of the population in 2010, or 35 million people, up from 32 million in 2009. “Frequent moviegoers” drive the industry, accounting for more than 50 percent of ticket sales.

It would be easy to lump these statistics in with general arguments about how working people can afford stuff like movie tickets versus undefined but presumably more expensive forms of entertainment during economic downturns. The fact is, however, that there is no data to support the proposition that the competition for the entertainment dollar is a zero-sum game, in good times or bad.

But in addition to the fact that cinema is accessible to cash-strapped working people, studio heads also served up high-quality entertainment to put and keep people in theater seats during 2009, specifically James Cameron’s latest epic, “Avatar.” Working people have discerning tastes, too.

Making money in movies is still all about a quality entertainment experience. But Amalgamated will benefit from a better lineup of films to close out 2012, and it does a good job of presenting good movies in the most technically satisfying manner possible as well.

Amalgamated is one of the most technically advanced theater operators in the world, as it’s invested heavily in upgrading to 3D and digital-projection capability. This promises higher-margin receipts at the box office.

Making movies work as an investment is a matter of smoothing out box office revenue that can be as volatile as any Hollywood diva or director. Amalgamated has complemented its movie business with hotel operations and a ski resort, a mix that establishes it as a global leisure services provider.

The stock has come down over the past three weeks because management reported underwhelming results for the first quarter of fiscal 2013 at the company’s Oct. 26, 2012, annual general meeting.

Earnings before interest and taxation (EBIT) for the period ending Sept. 30, 2012, were AUD29.8 million, which excludes non-recurring expenses related to the opening of Amalgamated’s flagship QT Sydney hotel. On a like-for-like basis this result was 29.6 percent below EBIT for the first quarter of fiscal 2012.

Management noted during its recent presentation that approximately 70 percent of the shortfall was attributable to Amalgamated’s movie-theater operation in Germany, which was impacted by the lack of compelling film releases, the 2012 European Football championships (the Continent’s quadrennial soccer tournament that was held in June and July) and the London Olympics.

Australia and New Zealand theaters were also affected by a relatively weak lineup of new movie releases.

The result from the hotel business was adversely impacted by the broader economic conditions. And though conditions at the Thredbo ski resort in the snowy mountains of New South Wales were much better compared to last season, the result was consistent with the prior year due largely to reduced lift ticket pricing and increased costs, particularly for energy.

Management’s outlook, however, is positive, based largely on a strong lineup of highly anticipated new movies scheduled over the coming months, including the already released 23rd entry in the globally popular James Bond series, “Skyfall,” “The Twilight Saga: Breaking Dawn Part 2,” another entry in another series that’s popular across the world with broader demographic appeal, and “The Hobbit: An Unexpected Journey,” which is sure to recapture the cinematic and financial magic wrought by Peter Jackson’s previous foray into Middle Earth with his spectacular “The Lord of the Rings” trilogy.

Amalgamated has begun construction on its new hotel brand, Abode by Rydges, at its Blacktown Drive-In–the last remaining drive-in movie theater in Sydney–and adjacent to its new Wet-n-Wild theme park, which is also currently under construction. Completion of both projects is expected by mid-2013.

And work is expected to commence prior to Christmas on our 17-level development of the Mick Simmons and State Theatre annex sites on George Street Sydney, with completion expected by the end of 2014.

Amalgamated reported solid operating results for fiscal 2012. Statutory net profit after tax (NPAT) for the year was AUD79.7 million, which compares to a AUD139.8 million figure for fiscal 2011 that was bolstered by a AUD60.3 million profit booked on the sale of Amalgamated’s movie theater business in the United Arab Emirates.

Normalized earnings–excluding the impact of one-off items, discontinued operations and income tax–were AUD106.6 million, up 4.2 percent from AUD102.3 million in fiscal 2011.

As for results at operating units, Australian movie theaters posted strong results, with a 2.5 percent increase in total box office. Major contributors were “The Avengers” and “Harry Potter and the Deathly Hallows Part 2,” which both generated more than AUD50 million in Australian box office. Amalgamated continued to expand its big-screen, big-seat Vmax concept and now operates 28 such theaters across its Australian circuit.

New Zealand movie theaters also performed well, posting a 1.3 percent same-screen box office increase. Amalgamated closed its Hamilton, New Zealand, theater but added two additional screens at its historic Embassy Theatre in Wellington.

German cinema exhibition was similarly strong, driven by the final film in the “Harry Potter” saga, “The Avengers” and the French film “The Intouchables.” Overall box office was up 3 percent over fiscal 2011. Although total admissions were flat the average admission price was up 3.2 percent.

Fiscal 2012 profit from Germany included individually significant income of AUD18.8 million following the resolution of the dispute with German tax authorities over Value Added Tax from prior years. Earnings from Germany continue to be affected by the strengthening of the Australian dollar against the euro.

Occupancy at Amalgamated’s owned and managed hotels declined 0.8 percentage points on a like-for-like basis to 68.1 percent from fiscal 2011 to fiscal 2012. This was offset by an increase in average rate of almost 6 percent to AUD143.

Amalgamated completed refurbishment projects at Rydges Lakeside and Rydges North Sydney during the year, and after accounting for the short-term disruption of these refurbishments occupancy held steady with the prior year’s results.

Normalized profit from the Thredbo ski resort was down by 29 percent. The calendar 2011 season ended up being very disappointing, with virtually no significant snowfalls occurring over the peak August period and conditions rarely suited for snowmaking. Overall skier numbers were down 7 percent compared to the 2010 season. Winter Down Under corresponds with summer in the Northern Hemisphere.

Amalgamated’s property division reported that all the remaining lots at the residential subdivision of its old Bass Hill Drive-In site were sold during the year, with a profit of AUD2 million booked as an individually significant item in relation to those sales. The total accounting profit over the life of the Bass Hill project was AUD15.8 million.

In September 2012 Amalgamated launched its flagship QT Sydney hotel the historic Gowings and State Theatre buildings. This followed the re-launch of its Gold Coast and Port Douglas properties as QT resorts earlier in 2012. The British clothing retailer TopShop opened its new Sydney store in the retail space at the QT Sydney development in October 2012

The Amalgamated board of directors approved and management declared a final dividend of AUD0.25 per share for fiscal 2012, which was paid Sept. 20. The total dividend for fiscal 2012 was AUD0.39 per share, a 5 percent increase over the interim and final dividend total of AUD0.37 paid for fiscal 2011. Amalgamated did pay a AUD0.04 per share special dividend in September 2011.

Company policy is to pay a dividend “that is mindful of the needs and expectations of shareholders, and in doing so provides continuity of earnings for both shareholders and the Group.” The payout ratio for fiscal 2012 was 78.5 percent.

Amalgamated’s total cash balance as of June 30, 2012, was AUD63.3 million, with total debt outstanding ofAUD47 million. The company renegotiated its lending facilities during fiscal 2012, with a current total of AUD350 million available.

Amalgamated Holdings has been paying a dividend since November 1986, with no cuts since 2001, and the interim and final cuts that were the only ones in the company’s 26-year payout history. The company’s net cash position and low overall debt provide plenty of safeguard for the dividend going forward.

There of course remains a great deal of uncertainty surrounding many of the world’s major economies, including Germany and Australia. This makes it difficult to forecast with any high level of confidence on the outlook for the remainder of 2012 and into 2013.

But a strong lineup of films already debuted and in the pipeline and some encouraging signs in the hotel sector suggests Amalgamated is well positioned to continue to meet the challenges presented by this uncertainty.

Amalgamated’s track record continues to demonstrate its proven business model. Management has also proven itself capable by updating movie exhibition technology in a timely way, converting legacy properties into new revenue generators and closing other sites while selling them for others to develop.

In short Amalgamated stands on a solid foundation on which to grow future business expansion and, in turn, shareholder returns. Amalgamated Holdings is a buy under USD7 on the Australian Securities Exchange (ASX) using the symbol AHD.

Amalgamated Holdings’ fiscal year runs from Jul. 1 to June 30. The company reports full financial and operating results twice a year; it typically posts first-half results in late February, with full fiscal year numbers out in late August.

Amalgamated’s board approved and its management team declared a final dividend of AUD0.25 per share on Aug. 23, 2012. It was paid Sept. 20, 2012, to shareholders of record as of Sept. 6, 2012. Shares traded “ex-dividend” on this declaration as of Aug. 31, 2012.

An interim dividend of AUD0.14 was paid Mar. 22, 2012, to shareholders of record on Mar. 8, 2012. It was declared Feb. 23, 2012, when Amalgamated reported fiscal 2012 first-half (ended Dec. 31, 2011) results. Shares traded ex-dividend on Mar. 2.

Dividends paid by Amalgamated are “qualified” for US tax purposes. The Australian government withholds 15 percent, based on the US-Australia tax treaty on double taxation. The two countries have not taken the step of eliminating withholding from dividends paid in respect of shares held in a US IRA, as have the US and Canada.

Among the analysts who cover the stock, one rates it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology. There are no “hold” recommendations, but there is one “sell” rating on the stock at present. The “best consensus” 12-month target price among the six analysts that provide such a number is AUD5.34, with a high of AUD7.10 and a low of AUD4.45.