Stock pick: Cineplex Inc. promises more blockbuster results

VIP theatres earn VIP returns

 

Chart showing trailing 12-month stock performance of Cineplex Inc.

With Netflix and other on demand services offering movies for a few bucks a month, it may not seem like the movie theatre business would be a good place to put your money these days. But unlike other some other industries that have been threatened by digital technology, the theatre business is still booming. In fact, a record number of movie ticket sales were sold in 2013.

One of the beneficiaries of this box office success as been Toronto’s Cineplex Inc. (TSX:CGX). It operates about 160 theaters between B.C. and Quebec and it’s seen its stock rise by 80% over the last five years. It’s down about 7% year-to-date, but that could change after it reports its earnings on May 8.

Kenric Tyghe, an analyst with Raymond James, is expecting good things from its first quarter results announcement. He points out that North American box office receipts have increased 6.8% over last year at this time, while attendance should grow by 9.6% to 17.7 million people.

Revenues should come in at around $290 million — $168 million in box office dollars and $87 million in concession purchases (and $34 million of “other”) — which would be a 24.4% increase over Q1 2013, he says.

In the future, more money will come from 3D and VIP offerings. In January, the company opened a 20,000 square food theatre in Toronto with its own lounge and more comfortable seats and he thinks we’ll likely see more of that in the future.

The company is currently trading at around $41 a share, but he expects it to hit $44 over the next 12 months.

As long as people keep going to movies and are willing to pay a higher price for a better offering — and he thinks they will — this stock will keep climbing.

“Our positive thesis on Cineplex is predicated on the traction of its premium offerings, accelerated VIP format launches and the strength of the 2014 (movie) slate,” he says.

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