In a research update to clients today, Goff maintained his “Buy” rating, but lowered his one-year price target on Cineplex from $56.00 to $50.00, implying a return of 35.9 per cent at the time of publication. The analyst says the company faced some unusual challenges in the quarter.
“Our cautious view towards the box office remains largely unchanged, we do consider Q317 to be an extreme, where the Mayweather/McGregor fight drew tremendous attention, and deterred studios from releasing films around such an event,” he explains. “Looking to the Box Office Mojo tracking of North American box office revenues, July was down 32.8% y/y, followed by August declining 50.0% y/y. September started off slowly, but has raced ahead to a MTD gain of 37.4% y/y.
But Goff cautions against too much optimism.
“Before extrapolating the September trending, we should caution that September 2016 was a tougher month, weighing in (sorry for the second boxing reference) at only 21.3% of the Q316 revenues – down from 27.6% for Q315,” the analyst notes. “This analysis also highlights that September is typically less than a third of the quarter. While investors are likely looking for a below-consensus quarter and increasingly anticipating a negative prequarter analyst dance, we are wary of further pressure ahead of the quarter. We do expect investors to hold on to the view of a stronger Q417, but, nonetheless, we are cautious overthe near term. We note Q417 is expected to record double-digit year-on-year growth, in part due to its measurement against a Q416 where box office revenues declined 6.6% y/y.”
Goff thinks Cineplex will generate EBITDA of $232.0-million on revenue of $1.57-billion in fiscal 2017. He expects those numbers will improve to EBITDA of $258.3-million on a topline of $1.67-billion the following year.