Q3 focus will be on Cineplex’s media segment, says Canaccord Genuity

With box office sales experiencing slow but steady growth investors should focus on Cineplex’s media business, which has been recovering, says Canaccord Genuity analyst Aravinda Galappatthige.

Recently released data from the Motion Picture Theatre Associate of Canada revealed that Canadian box office sales were up 2% in Q3, 2013. This means there will be little room for mystery on the box office side of Cineplex’s (TSX:CGX) upcoming Q3 results, and investors should focus on the company’s media segment, says Canaccord Genuity analyst Aravinda Galappatthige.

On Tuesday, November 5th, Cineplex will post its third quarter results. The company is following on a Q2 in which it delivered EBITDA of $58.7 million on revenue of at $301.6 million, handily beating the street consensus of $290.9 million.

Galappatthige notes that Cineplex’s media business has experienced a rebound in recent quarters, and he expects further strength in the upcoming quarter. The company makes money from showing ads before movies, but has recently expanded its offerings in the digital signage business.

In July, Cineplex acquired EK3, a London, Ontario company with international interests and clients such as McDonalds, Walmart and Target. The move is meant to complement Cineplex’s own burgeoning digital signage business. The Canaccord Genuity analyst says he is bullish on the company’s ability to drive new revenues to its media segment, particularly after its planned HD lobby screens are introduced.

That pickup of EK3 followed on the heels of Cineplex’s $200-million acquisition of 26 theatres from Empire Company Ltd. The deal, which included 24 properties in Atlantic Canada and two in Ontario, gave Cineplex a 78% shares of the Canadian movie theatre business.

In a research update to clients recently, Galappatthige maintained his HOLD rating on Cineplex, but raised his one year target price by a dollar, to $36.

Shares of Cineplex closed today up 2.5% to $41.44.

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