Gavin GrahamCineplex IncCGX.TOTOP PICKMay 27, 2014

He loves movies. Going to be tough to top last year's Barbenheimer. Rumours of the death of movies have been exaggerated. It's going to be a season-to-season, year-to-year stock, rather than a cyclical.

Covid hammered them, while a British company tried to buy them but aborted that deal (now in a lawsuit). It's not cheap seeing a movie, but he goes now and then. Movies are coming back, though. You can't duplicate the experience at home. Still a lot of uncertainty with this stock, though.

Revenue growth is coming back a bit, with lower comparables from last year helping the year-over-year figures. Its debt levels are high, with net debt of $1.9B, and a net debt/EBITDA of 6.8X. Interest costs are $137M (last 12 months) and these will likely rise a bit with higher rates. 12-month cash flow was $116M and therein lies the problem. The debt is mostly due in the next five years. With attendance back, and a decent film slate, bankruptcy is becoming less of a concern, but it is still hard to paint a really positive picture here because of the leverage. 

It is somewhat cheap (0.4X forward sales), but also has a fairly high forward P/E of 20.2X. It could become a takeover target, however, we would not place a high level of probability on that at these current levels. 
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Cineplex remains a recovery story, and its beta of 2.88 signals more risk than usual. It rose 10% in Q1, but the chart was choppy. So, consider Cineplex a partial buy. After all, Covid didn’t kill cinema-going, as some expected, but deferred it. We still love the big screen. Read Dark horses: Nuvei, Cineplex, Boralex for our full analysis.

It's a very difficult story. People will take time returning to the cinemas. Cineplex did a good job offering ancillary services. Also, film studios like Disney are rethinking how they will exhibit movies (i.e. streaming). Will the Marvel blockbusters return to big screens?